Lesson 9 of Investment Planning: Time Value of Money

Question 1

What is an Annuity Due?

Answer 1

At the beginning of the period or at time period 0

Example: Education Tuition Payments, Retirement income, Rent payments

Question 2

What is an Ordinary Annuity?

Answer 2

At the end of the period or at time period 1

Example: Debt Payments such as Mortgage & Car

Question 3

When to accept a project or reject a project based on NPV?

Answer 3

If NPV = 0 or + then accept
If NPV is - then reject

Question 4

For Mutually Exclusive Projects, which NPV should you select?

Answer 4

The project with the highest NPV

Question 5

Internal Rate of Return

Answer 5

The discount rate in which NPV will equal 0.

Question 6

IRR Decision Criteria?

Answer 6

IRR => Discount Rate (Project Accepted)
IRR < Discount Rate (Project Rejected)

Question 7

Real Rate of Return or Inflation-Adjusted Rate of Return

Answer 7

Includes Inflation as well