Chapter 5

Question 1

Time Value of Money

Answer 1

money can be invested today to earn interest and grow to a larger dollar amount in the future

Question 2

Interest

Answer 2

“rent” paid for the use of money for some period of time

Question 3

Simple Interest

Answer 3

computed by multiplying an initial investment times both the applicable interest rate and the period of time for which the money is used

Question 4

Compound Interest

Answer 4

interest computed not only on the initial investment but also on the accumulated interest in previous periods

Question 5

Effective Rate

Answer 5

the actual rate at which money grows per year

Question 6

Future Value (FV)

Answer 6

amount of money that a dollar will grow to at some point in the future.

Question 7

Present Value (PV)

Answer 7

present value is today’s equivalent of a particular amount in the future, after backing out the time value of money

Question 8

Monetary Assets

Answer 8

money and claims to receive money, the amount of which is fixed or determinable

Question 9

Monetary Liabilities

Answer 9

obligations to pay amounts of cash, the amount of which is fixed or determinable

Question 10

Ordinary Annuity

Answer 10

cash flows occur at the end of each period

Question 11

Annuity Due

Answer 11

cash flows occurring at the beginning of each period