511 - Module 4

Question 1

Amortization

Answer 1

Payment schedules are structured so more interest and less principal is paid in the earlier payments, and over time the amount applied to principal increases while the amount applied to interest decreases.

Question 2

Annuity

Answer 2

Systematic savings program with equal and regular deposits or payments.

Question 3

Annuity due

Answer 3

Series of payments that are made at the beginning of each period, such as with lease payments.

Question 4

Compounding

Answer 4

Interest being earned on increasing sums of principal and interest over time.

Question 5

Discounting

Answer 5

Used to find a single amount today, using a Future Value and based on a given number of periods at a given interest rate.

Question 6

Fixed (equal) payments

Answer 6

Payments that are unchanged over the entire period

Question 7

Future Value (FV) of a single amount

Answer 7

Usually a positive amount on the calculator. It is the end result of variables such as time, interest, and inflation.

Question 8

Future Value (FV) of an annuity

Answer 8

The accumulation of funds needed to meet a future financial goal.

Question 9

Internal Rate of Return (IRR)

Answer 9

Solving for compound return involving unequal cash flows.

Question 10

Net Present Value (NPV)

Answer 10

The difference between the total PV of the cash flows and the amount of the initial outlay.

Question 11

Ordinary annuity

Answer 11

Series of payments made as the end of each period, such as mortgage payments.

Question 12

Present Value (PV) of an annuity

Answer 12

Used to determine the current value of future payments. (Ordinary annuity - end, or annuity due - beginning.)

Question 13

Present Value (PV) of a single amount

Answer 13

Usually a negative input on the calculator. It is the amount before any other factors have an affect.

Question 14

Serial payments

Answer 14

Payments increase each year by the amount of inflation, to maintain a constant or real dollar amount.