Final (Ch.5)

Question 1

Annuity

Answer 1

• A level stream of cash flows for a fixed period of time

Question 2

Annuity Due

Answer 2

• An annuity for which the cash flows occur at the beginning of the period

Question 3

Perpetuity

Answer 3

• An annuity in which the cash flows continue forever

Question 4

Quoted Interest Rate

Answer 4

• The interest rate expressed in terms of the interest payment made each period. Also stated interest rate

Question 5

Effective Annual Rate (EAR)

Answer 5

• The interest rate expressed as if it were compounded once per year

Question 6

Annual Percentage Rate (APR)

Answer 6

• The Interest rate charged per period multiplied by the number of periods per year

Question 7

Amortizing a Loan

Answer 7

• Process of paying back a loan by making regular principal payments over time

Question 8

Ordinary Annuity

Answer 8

• Series of constant cash flows that arrive or are paid at the end of each period