Chapter 2- Time Value of Money

Question 1

Annual Percentage Rate (APR)

Answer 1

The annual rate charged for borrowing or earned by investing

Question 2

Annual Percentage Yield (APY)

Answer 2

effective yearly rate of return taking into account compounding interest
(1 + r / n) - 1

Question 3

Annuity

Answer 3

a series of equal payments made at equal intervals

Question 4

Annuity Due

Answer 4

stream of equal payments that occur at the BEGINNING of a period

Question 5

Compounding

Answer 5

process whereby the value of an investment increases exponentially over time due to earning INTEREST ON INTEREST

Question 6

Discounting

Answer 6

finding present value of a future payment

Question 7

Future Value

Answer 7

projected value of an asset based of the interest rate and time in the account

Question 8

Future Value Interest Factor (FVIF)

Answer 8

factor multiplied by today’s amount to determine the value of said amount at a future date

Question 9

Future Value Interest Factor of an Annuity (FVIFA)

Answer 9

factor multiplied by at he annuity (payment) to determine the amount in the account at a future date

Question 10

Lump Sum

Answer 10

single, one-time payment

Question 11

Ordinary Annuity

Answer 11

stream of equal payments that occurs at the END of a period

Question 12

Present Value

Answer 12

current value of an asset to be received in the future

Question 13

Present Value Interest Factor

Answer 13

factor multiplied by a FUTURE AMOUNT so as to determine the value of annuity today

Question 14

Time Value of Money

Answer 14

where the dollar is worth more in the future (even after adjusting for inflation) because of INTEREST