FIN /
320F -
/ // /
Exam 3 Questions With Correct Answers
/ // // // // //
Value //of //money //changes //over //time //- //verified //answer(s)-
✔✔money //in //hand //must //be //compounded //to //determine //its //value //in //the //future //
money /
/that /
/will /
/be /
/received /
/at //some //moment //in //the //future //must //be //discounted //to //determine //its //value //today
*Ch. //4 //- //Time //Value //of //Money*
Compounding //- //verified //answer(s)-
✔✔process /
/of //adding //interest //to //the //beginning //balance //and //previously //accrued //interest //
allows //us //to //earn //(or //pay //interest //on //interest
larger //the //compound //interest //rate //-> //larger //the //future //value
more //frequent //the //compounding //-> //greater //the //future //value //
*Ch. //4 //- //Time //Value //of //Money*
Discounting //- //verified //answer(s)-✔✔opposite //of //compounding
,larger //the //discount //rate //-> //smaller //present //value
more //frequently //the //discount //rate //is //applied //-> //smaller //the //present //value //
simply //compounding //in //reverse
*Ch. //4 //- //Time //Value //of //Money*
Lump //sums //- //verified //answer(s)-✔✔one-off //chunks //of //cash //
ex: //down-payment //on //a //house //or //car, //one-
time //gift //or //bonus, //repayment //of //principal //on //a //bond
*Ch. //4 //- //Time //Value //of //Money*
Present //value //(PV) //of //lump //sum //- //verified //answer(s)-
✔✔value //of //the //lump //sum //at //time //zero
PV //= //FV //x //[1 /// //(1 //+ //r/m)^n //x //m]
m //= //number //of //payments //or //discounting //periods //per //year
r //= //annual //rate //of //return //or //interest //rate //
-periodic //rate //= //r/m //= //I% //in //financial //calculator
n //= //total //number //of //years //
-total //number //of //periods //or //payments //= //n //x //m //= //N //in //financial //calculator //
*Ch. //4 //- //Time //Value //of //Money*
,Future //value //(FV) //of //lump //sum //- //verified //answer(s)-
✔✔value //of //the //lump //sum //at //end //of //n //x //m //periods //
FV //= //PV //x //(1 //+ //r/m)^n //x //m
m //= //number //of //payments //or //discounting //periods //per //year
r //= //annual //rate //of //return //or //interest //rate //
-periodic //rate //= //r/m //= //I% //in //financial //calculator
n //= //total //number //of //years //
-total //number //of //periods //or //payments //= //n //x //m //= //N //in //financial //calculator //
*Ch. //4 //- //Time //Value //of //Money*
Annuities //- //verified //answer(s)-
✔✔streams //of //equal //payments //that //are //equally //spaced //in //time
Ex: /
/mortgage /
/loan /
/payments /
/due //on //the //first //of //each //month, //bond //coupon //payments //paid //every //6 //months
various //types //- //ordinary //annuity, //annuity //due, //perpetuity //
*Ch. //4 //- //Time //Value //of //Money*
, Ordinary //annuity //- //verified //answer(s)-
✔✔has //its //first //payment //at //the //end //of //the //period //
by //far //most //common //type //of //annuity //
all //loans //(student //loans, //car //loans, //mortgage //loans, //etc) //are //ordinary //annuities //
*Ch. //4 //- //Time //Value //of //Money*
Annuity //due //- //verified //answer(s)-
✔✔has //its //first //payment //at //the //beginning //of //the //period //
sometimes //used //in //insurance //industry //or //in //leases //
w/
financial /
/calc //- //set //payment //period //to //"BEGIN" //- //be //sure //to //set //back //to //"END" //when //finished
*Ch. //4 //- //Time //Value //of //Money*
Perpetuity //- //verified //answer(s)-✔✔ordinary //annuity //that //continues //forever
ex: //preferred //stock //dividend //
*Ch. //4 //- //Time //Value //of //Money*
Present //Value //of //ordinary //annuity //- //verified //answer(s)-
✔✔value //of //the //stream //of //equal //payments //at //time //zero //
w/respect //to //loans //- //PVA //of //loan //is //amount //of //cash //bank //lends //to //you //
*Time //Value //of //Money*
320F -
/ // /
Exam 3 Questions With Correct Answers
/ // // // // //
Value //of //money //changes //over //time //- //verified //answer(s)-
✔✔money //in //hand //must //be //compounded //to //determine //its //value //in //the //future //
money /
/that /
/will /
/be /
/received /
/at //some //moment //in //the //future //must //be //discounted //to //determine //its //value //today
*Ch. //4 //- //Time //Value //of //Money*
Compounding //- //verified //answer(s)-
✔✔process /
/of //adding //interest //to //the //beginning //balance //and //previously //accrued //interest //
allows //us //to //earn //(or //pay //interest //on //interest
larger //the //compound //interest //rate //-> //larger //the //future //value
more //frequent //the //compounding //-> //greater //the //future //value //
*Ch. //4 //- //Time //Value //of //Money*
Discounting //- //verified //answer(s)-✔✔opposite //of //compounding
,larger //the //discount //rate //-> //smaller //present //value
more //frequently //the //discount //rate //is //applied //-> //smaller //the //present //value //
simply //compounding //in //reverse
*Ch. //4 //- //Time //Value //of //Money*
Lump //sums //- //verified //answer(s)-✔✔one-off //chunks //of //cash //
ex: //down-payment //on //a //house //or //car, //one-
time //gift //or //bonus, //repayment //of //principal //on //a //bond
*Ch. //4 //- //Time //Value //of //Money*
Present //value //(PV) //of //lump //sum //- //verified //answer(s)-
✔✔value //of //the //lump //sum //at //time //zero
PV //= //FV //x //[1 /// //(1 //+ //r/m)^n //x //m]
m //= //number //of //payments //or //discounting //periods //per //year
r //= //annual //rate //of //return //or //interest //rate //
-periodic //rate //= //r/m //= //I% //in //financial //calculator
n //= //total //number //of //years //
-total //number //of //periods //or //payments //= //n //x //m //= //N //in //financial //calculator //
*Ch. //4 //- //Time //Value //of //Money*
,Future //value //(FV) //of //lump //sum //- //verified //answer(s)-
✔✔value //of //the //lump //sum //at //end //of //n //x //m //periods //
FV //= //PV //x //(1 //+ //r/m)^n //x //m
m //= //number //of //payments //or //discounting //periods //per //year
r //= //annual //rate //of //return //or //interest //rate //
-periodic //rate //= //r/m //= //I% //in //financial //calculator
n //= //total //number //of //years //
-total //number //of //periods //or //payments //= //n //x //m //= //N //in //financial //calculator //
*Ch. //4 //- //Time //Value //of //Money*
Annuities //- //verified //answer(s)-
✔✔streams //of //equal //payments //that //are //equally //spaced //in //time
Ex: /
/mortgage /
/loan /
/payments /
/due //on //the //first //of //each //month, //bond //coupon //payments //paid //every //6 //months
various //types //- //ordinary //annuity, //annuity //due, //perpetuity //
*Ch. //4 //- //Time //Value //of //Money*
, Ordinary //annuity //- //verified //answer(s)-
✔✔has //its //first //payment //at //the //end //of //the //period //
by //far //most //common //type //of //annuity //
all //loans //(student //loans, //car //loans, //mortgage //loans, //etc) //are //ordinary //annuities //
*Ch. //4 //- //Time //Value //of //Money*
Annuity //due //- //verified //answer(s)-
✔✔has //its //first //payment //at //the //beginning //of //the //period //
sometimes //used //in //insurance //industry //or //in //leases //
w/
financial /
/calc //- //set //payment //period //to //"BEGIN" //- //be //sure //to //set //back //to //"END" //when //finished
*Ch. //4 //- //Time //Value //of //Money*
Perpetuity //- //verified //answer(s)-✔✔ordinary //annuity //that //continues //forever
ex: //preferred //stock //dividend //
*Ch. //4 //- //Time //Value //of //Money*
Present //Value //of //ordinary //annuity //- //verified //answer(s)-
✔✔value //of //the //stream //of //equal //payments //at //time //zero //
w/respect //to //loans //- //PVA //of //loan //is //amount //of //cash //bank //lends //to //you //
*Time //Value //of //Money*
