Chapter 4 CENGAGE HW

Question 1

One of the four major time value of money terms; the amount to which an individual cash flow or series of cash payments or receipts will grow over a period of time when earning interest at a given rate of interest

Answer 1

Future value

Question 2

A process that involves calculating the current value of a future cash flow or series of cash flows based on a certain interest rate

Answer 2

Discounting

Question 3

A 6% return that you could have earned if you had made a particular investment

Answer 3

Opportunity cost of funds

Question 4

A value that represents the interest paid by borrowers or earned by lenders, expressed as a percentage of the amount borrowed or invested over a 12-month period

Answer 4

Annual percentage rate

Question 5

A cash flow stream that is created by a lease that requires the payment to be paid on the first of each month and a lease period of three years

Answer 5

Annuity due

Question 6

A concept that maintains that the owner of a cash flow will value it differently, depending on when it occurs

Answer 6

time value of money

Question 7

A cash flow stream that is generated by a share of preferred stock that is expected to pay dividends every quarter indefinitely

Answer 7

future value

Question 8

A table that reports the results of the disaggregation of each payment on an amortized loan, such as a mortgage, into its interest and loan repayment components

Answer 8

amortization schedule

Question 9

A cash flow stream that is created by an investment or loan that requires its cash flows to take place on the last day of each quarter and requires that it last for 10 years

Answer 9

ordinary annuity

Question 10

A type of security that is frequently used in mortgages and requires that the loan payment contain both interest and loan principal

Answer 10

amortized loan

Question 11

Present value of lump sum formula

Answer 11

FV / (1+r)^n

Question 12

when payments are made at the end of each period

Answer 12

annuity due

Question 13

Beta Corporation plans to make an investment of $28,000 in a fixed income plan for the next 10 years, paying the amount at the end each year. This form of payment is referred to as a(n) _____.

Answer 13

ordinary annuity

Question 14

For the last five years Harry has been buying 50 shares of Alpha Corporation every month. The shares are currently priced at $34 per share. Alpha paid a dividend of $5 per share at the end of each of these five years. The monthly investment by Harry and the receipt of dividend at the end of every year can be referred to as a(an) _____.

Answer 14

annuity due

Question 15

An implied interest rate that does not reflect an inflation risk premium.

Answer 15

real interest rate

Question 16

The profit that results from the appreciation in the value of an asset, calculated as the difference between a higher selling price and a lower purchase price.

Answer 16

capital gain

Question 17

The variability in potential investment returns that results from the possibility that the investment’s issuer will not meet either its interest or principal-repayment obligations or the other terms specified in the investment agreement.

Answer 17

default risk

Question 18

The mathematical relationship between the interest rate and the time to maturity of the debt securities of a given borrower on a given date and denominated in a given currency.

Answer 18

market segmentation