Mod 7

Question 1

Amortized loan

Answer 1

A loan that has identical payments throughout the contract

Payments are applied first toward reducing the interest balance, and any remaining sum toward the principal balance

Question 2

Annuity due

Answer 2

A finite stream of identical recurring payments whose payments occur at the beginning of each period

Question 3

Growing Annuity

Answer 3

An annuity whose payments grow at a constant rate per period for the length of the contract

Question 4

Growing perpetuity

Answer 4

A type of perpetuity where the regularly occurring cash flows grow at a fixed rate per period forever

Question 5

Loan amortization schedule

Answer 5

A breakdown of the interest and principal payments on an amortized loan

Question 6

Ordinary annuity

Answer 6

A finite stream of identical recurring payments whose payments occur at the end of each period

Question 7

Perpetuity

Answer 7

An infinite stream of cash flows that are paid or received with regular frequency

Question 8

Trial & Error

Answer 8

The process by which we solve for the IRR

We try various discount rates until one rate that sets the NPV equal to 0