Chapter 5 Flashcards

1
Q

Where interest from the first year is added to the principle and interest earned in the second year is earned on the principle and interest from prior years

A

Compounding Interest

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2
Q

The amount to which your investment will grow

A

Future Value

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3
Q

The value used as a multiple to calculate the future value

A

Future Value Factor

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4
Q

When interest is only earned on the initial investment

A

Simple Interest

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5
Q

The value in today’s dollars of a future payment discounted back to present at the required rate of return

A

Present Value

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6
Q

The value used as a multiplier to calculate an amount’s present value

A

Present Value Factor

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7
Q

A series of equal dollar payments made for a specified number of years

A

Annuity

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8
Q

An annuity where the cash flows occur at the end of each period

A

Ordinary Annuity

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9
Q

Depositing an equal sum of money at the end of each year for a certain number of years and allowing it to grow

A

Compound Annuity

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10
Q

The value used as a multiplier to calculate the future value of an annuity

A

Annuity Future Value Factor

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11
Q

The value used as a multiplier to calculate the present value of an annuity

A

Annuity Present Value Factor

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12
Q

An annuity where the payments occur at the beginning of each period

A

Annuity Due

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13
Q

A loan that is paid off in equal periodic payments

A

Amortized Loan

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14
Q

The annual compound rate that produces the same return as the nominal rate when something is compounded on a nonannual basis, providing the true rate of return

A

Effective Annual Rate

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15
Q

An annuity with an infinite life

A

Perpetuity

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