Chapter 5

Question 1

Annuity

Answer 1

A regular stream of payments over a fixed time

Question 2

Ordinary annuity

Answer 2

An annuity with a first payment that occurs one period hence. Sometimes referred to as a simple annuity or an annuity in arrears

Question 3

Annuity due

Answer 3

An annuity with a payment made immediately; that is, the first payment is at time zero

Question 4

Term

Answer 4

The time between the beginning of an annuity’s first payment and the end of its last payment

Question 5

Perpetuity

Answer 5

A security that promises regular cash flows forever

Question 6

Maturity date

Answer 6

The date at which the last bond payment is due

Question 7

Par value

Answer 7

The face value on a bond, usually $1000 in the US and $100 in NZ. The face value is normally equal to the maturity value

Question 8

Face value

Answer 8

The maturity value of a bond, usually the principal, that is repaid to the lender

Question 9

Amortisation

Answer 9

Process of discharging a debt by a set of regular and equal or unequal payments that include the amount borrowed and interest owing