Ch.5 - Time Value of Money: Basic Concepts and Applications

Question 1

The time value of money concept indicates that the value of an amount received today will be…

Answer 1

greater than the value of receiving the same amount in the future.

Question 2

A percentage that represents the value of something that must be given up to acquire or achieve something else.

Answer 2

opportunity cost

Question 3

The process of lowering a future value to become a smaller value in the present.

Answer 3

discounting

Question 4

The process of increasing a present value into a larger future value.

Answer 4

compounding

Question 5

The higher the interest rate used, the larger the future value will be of the…

Answer 5

principal amount.

Question 6

The future value of an investment is higher when…

Answer 6

the number of periods and the interest increases.

Question 7

What offers a consistent cash flow amount saved or received.

Answer 7

An annuity

Question 8

This is an annuity in which payments are received at the end of each period. (fixed-rate mortgage).

Answer 8

regular/ordinary annuity

Question 9

An annuity in which payments are received at the beginning of each period. (like a life insurance policy)

Answer 9

annuity due

Question 10

When calculating an annuity on a HP–10bll, what is the BEG/END for?

Answer 10

If the person is putting money in at the start of the investment make sure you press BEG
If the person is putting money in after the period starts, like at the end of the year or at the end of the month, then you use the END button.