FNCE chapter 4- Time value of money

Question 1

basic financial principle

Answer 1

all else equal, the sooner cash is received, the more valuable it is

Question 2

time value of money (TVM)

Answer 2

the principles and computations used to revalue cash payoffs from different times so they are stated in dollars of the same time period

Question 3

present value (PV)

Answer 3

the current value of a future cash flow or series of cash flows

Question 4

discounting

Answer 4

The process of determining the present value of a cash flow or a series of cash flows to be received (paid) in the future; the reverse of compounding

Question 5

perpetuities

Answer 5

streams of equal payments that are expected to continue forever

Question 6

simple (quoted) interest rate (r simple)

Answer 6

The annual, non-compounded rate, quoted by borrowers and lenders; is used to determine the rate earned per compounding period

Question 7

annual percentage rate (APR)

Answer 7

Another name for the simple interest rate does not consider the effect of interest compounding

Question 8

affective (equivalent)
annual rate (r ear)

Answer 8

The annual rate of interest actually being earned, as opposed to the quoted rate

Question 9

the further in the future an amount is received(paid) or the higher the interest rate

Answer 9

the lower the present value of the future amount

Question 10

the greater the number of compounding per year

Answer 10

the greater the effective rate of return that is earned on an investment