chapters 4 and 5

Question 1

a dollar today is worth more than a dollar promised at any time in the future

Answer 1

time value of money

Question 2

interest made only on the original principle

Answer 2

simple interest

Question 3

interest is made on the principle plus prior interest

Answer 3

compound interest

Question 4

this equates present value to a future value at any given rate of time

Answer 4

number of periods

Question 5

a valuation method used to evaluate the attractiveness of an investment opportunity

Answer 5

discounted cash flow

Question 6

which variables do you use to calculate a lumpsum

Answer 6

N, I, PV, FV

Question 7

which variables do you use to calculate a lumpsum with payments

Answer 7

N, I, PV, PMT

Question 8

which variables do you use to calculate for payments now and a lump sum later

Answer 8

N, I, FV, PMT

Question 9

a finite series of equal payments at regular intervals

Answer 9

annuity

Question 10

what is it called when the 1st payment occurs at the end of the period

Answer 10

ordinary annuity

Question 11

what is it called when the 1st payment occurs at the beginning of the period

Answer 11

annuity due

Question 12

an infinite series of equal payments

Answer 12

perpetuity

Question 13

what is the formula for perpetuity

Answer 13

PV = PMT/I

Question 14

borrower receives money today and pays back a lump sum in the future

Answer 14

Pure Discount Loan

Question 15

borrower pays interest only, until the end, then pays principle

Answer 15

Interest Only Loan

Question 16

pay a combo of principal and interest over the life of the loan

Answer 16

Amortized loan

Question 17

what is the formula for an annual percentage rate

Answer 17

APR = Periodic Rate x Number of periods

Question 18

the rate expressed as if compounded once per year

Answer 18

Effective Annual Rate

Question 19

the process of paying off loans regularly by reducing the principle (also has interest)

Answer 19

Amortization

Question 20

the process of accumulating interest in an investment over time to earn more interest

Answer 20

compounding

Question 21

why is a dollar received today worth more than a dollar received in the future

Answer 21

can be reinvested and also b/c inflation will make future worth less

Question 22

calculating the PV of future cash flow to determine its worth today is commonly called….

Answer 22

discounted cash flow valuation

Question 23

the amount an investment is worth after one or more periods

Answer 23

future value

Question 24

with discounting, the resulting value is called

Answer 24

present value

Question 25

while compounding, the result is called

Answer 25

future value

Question 26

current value of an amount to be received in the future

Answer 26

present value

Question 27

a way for investors to approximate how long it will take them to double their money at a given interest rate

Answer 27

Rule of 72 (72/Interest Rate)