Chapter 5 Flashcards
1
Q
The concept of compound interest refers to:
A
The payment of interest on previously earned interest.
2
Q
When interest rates increase, the future value of a single cash flow _________
A
Increases
3
Q
The present value of an annuity rises when:
The interest __________
The number of payments ___________
The amount of each payment ______
A
decreases
increases
increases
4
Q
If you can find the rate of return by dividing the cash flow by the present value, then the investment is?
A
A perpetuity
5
Q
True or False?
Real interest rates can be negative, zero or positive
A
True
6
Q
True or false
An increase in the number of years of the investment will cause the effective annual rate of interest (EAR) to increase
A
False
