The Time Value of Money

Question 1

The repayment schedule of loan principal over time. It is structured in such a way that more interest and less principal is being repaid at first, and over time the amount of principal being repaid increases, and the amount of interest being paid decreases.

Answer 1

Amortization.

Question 2

The recipient of annuity distributions

Answer 2

Annuitant

Question 3

A stream of equal payments received or paid out over a period of time at regular intervals. Product: A life insurance product that is frequently used as a retirement vehicle. It distributes funds over the lifetime of the recipient based on preestablished criteria. It may pay over the lives of one or more persons, may have a specified ending date, and/or may pay a specified dollar amount.

Answer 3

Annuity

Question 4

An annuity for which disbursements or receipts are made at the beginning of the period, as opposed to the end of the period

Answer 4

Annuity Due

Question 5

The percentage of interest earned, expressed either as an annual rate or a rate per compounding period.

Answer 5

Compound Rate

Question 6

The process of interest being earned on both a principal balance and previously earned interest.

Answer 6

Compounding

Question 7

The period of time that passes before interest is
compounded once. For example, if the compounding period is one year, interest is being compounded once a year. If the compounding period is a month, interest
is being compounded each month.

Answer 7

Compounding period.

Question 8

The percentage of interest discounted. It may be expressed as an annual rate or a periodic rate (i.e., a discount rate per compounding period)

Answer 8

Discount Rate

Question 9

The reverse of compounding. An example would be taking an amount that an individual is going to receive in the future (future value) and discounting it back to today at a rate of return that the individual believes he can
achieve. This would then value the future dollar amount in present dollars

Answer 9

Discounting

Question 10

The period of time in which interest is discounted once. For example, if interest is discounted annually, the discounting period is one year. If it is discounted weekly, the discounting period is one week.

Answer 10

Discounting period.

Question 11

An amount of money to be received in a single payment at some point in the future.

Answer 11

Future Sum

Question 12

The value of a single sum or a stream of payments after

compounding has taken place.

Answer 12

Future Value

Question 13

The value after compounding of a stream of equal

payments made at equal intervals

Answer 13

Future value of an annuity

Question 14

The “real” rate of return after taking into account
inflation. For example, if the rate of return was 4%, but inflation was also running at 4%, then the inflation-adjusted return would be 0%

Answer 14

Inflation-adjusted return.

Question 15

The payment for the use of money

Answer 15

Interest

Question 16

Pertains to the time value of money. It is the periodic rate, that is, the annual rate divided by the number of compounding periods in a year. If interest is compounded semiannually and the annual rate is
8%, the interest rate per compounding period is 4%

Answer 16

Interest rate per compounding period

Question 17

Pertains to the time value of money. It is the periodic rate, that is, the annual rate divided by the number of discounting periods in a year. For example, if interest is discounted quarterly and the annual interest rate is 8%, the interest rate per discounting period is 2%

Answer 17

Interest rate per discounting period

Question 18

The additional rate of return that could be earned on an
alternative investment. For example, if you are holding Investment A earning 1%, and Investment B is earning 3%, the opportunity cost of holding Investment
A is 2%

Answer 18

Opportunity Cost

Question 19

Pertains to the time value of money. An annuity in which

payments are made or received at the end of the period.

Answer 19

Ordinary Annuity

Question 20

Pertains to the time value of money. A periodic payment is a disbursement or receipt of the same amount of money over regular intervals.

Answer 20

Periodic payment

Question 21

Pertains to the time value of money. It is the value of an investment before any compounding has taken place. It typically refers to a lump sum, that is, a dollar amount invested or available at a single point in time

Answer 21

Present Sum

Question 22

Pertains to the time value of money. It is the current value of a future sum or a stream of payments, given a discount rate, or the value of an investment before any compounding takes place.

Answer 22

Present value

Question 23

The discounted value of a future stream of

payments

Answer 23

Present Value of an annuity

Question 24

An approximate guideline for determining how long it will take an investment to double in value or for determining the interest rate required for an
investment to double in value

Answer 24

Rule of 72

Question 25

A payment that is increased each year to take into account inflation. With a ________ one would maintain the same amount of buying
power over time.

Answer 25

Serial Payment

Question 26

The principle that the value of money changes over time, such as the concept that a dollar you receive today is more valuable than a dollaryou receive in the future since you can invest the dollar you receive today and
earn a return on it

Answer 26

Time Value of Money