Chapter 6 Flashcards
What are Cash Flow Valuations?
The FV or PV of multiple cash flow are the sum of individual cash flow valuations.
What is an annuity?
Equal payments that occur at regular intervals for a specified number of periods.
What is a perpetuity?
Infinite series of equal payments (cash flow is received forever).
What is an annuity due?
A payment that is at the beginning of the period.
What is a growing annuity?
A finite number of growing cash flows.
What is a growing perpetuity?
Cash flows that grow at a constant rate and continue forever.
What is the Effective Annual Rate (EAR)?
The actual rate paid (or received) after accounting for compounding that occurs during the year.
What is the Annual Percentage Rate (APR)?
The annual quotes rate on the instrument.
What is an Amortized loan?
Each payment covers the interest expense plus includes a repayment of a portion of the principal.
What is a pure discount loan?
Principal amount is repaid at some future date, without any periodic interest rate.
What are interest only loans?
Borrower pays interest each period and repays the entire principal at some point in the future.
