Chapter 2- Applying Time Value

Question 1

Simple interest

Answer 1

Interest on a loan amount computed as a percentage of the loan amount, or principal
I= Pxrxt

Question 2

Compound interest

Answer 2

The process of earning intact on interest

Question 3

The time value of money is most commonly applied to two types of cash flows. They are?

Answer 3

Single dollar amount

An annuity

Question 4

Annuity

Answer 4

The payment of a series of equal cash flow payments at equal intervals of time

Question 5

Future value interest factor (FVIF)

Answer 5

Is a factor multiplied by today’s savings to determine how the savings will accumulate
This can be used to also quickly determine the future value for any time period

Question 6

Ordinary annuity

Answer 6

Is a stream of equal payments that are received or paid at equal intervals in time at the end of a period

Question 7

Annuity due

Answer 7

Is a series of equal cash flow payments that occur at the beginning of each period

Question 8

Rule about annuities is….

Answer 8

The amount of frequency of the payment changes over time, the payment stream does NOT reflect the annuity

Question 9

Nominal interest

Answer 9

Takes into account compounding

Question 10

Interest

Answer 10

The rent charged for the use of money