TCU Finance Exit Exam UPDATED
ACTUAL QUESTIONS AND CORRECT
ANSWERS
Rate of return you could earn on an alternative investment of similar risk - CORRECT
ANSWER Opportunity Cost
Finding Present Value is called ______________, the reverse of compounding. - CORRECT
ANSWER Discounting
If payments are equal and are made at fixed intervals, then the series is an _____________. -
CORRECT ANSWER Annuity
If payments occur at the end of each period, then it is an ___________________. - CORRECT
ANSWER Ordinary Annuity
Mortgages, car loans, and student loans.
What type of annuities are these? - CORRECT ANSWER Ordinary Annuity
If payments are made at the beginning of each period, then it's an _______________. -
CORRECT ANSWER Annuity Due
Rental payments, life insurance.
What type of annuities are these? - CORRECT ANSWER Annuity Due
How do you find the Future Value of an Ordinary Annuity (END)? - CORRECT
ANSWER FV = PMT[((1+r)^n - 1)/r]
,PV = 0 (for calculator)
How do you find the Future Value of an Annuity Due (BEGIN)? - CORRECT ANSWER P
= (PMT [((1 + r)n - 1) / r])(1 + r)
True/False: The FV of an annuity due will be greater than that of a similar ordinary annuity. -
CORRECT ANSWER True
How do you find the Present Value of an Ordinary Annuity? - CORRECT ANSWER P=
PMT [(1 - (1 / (1 + r)n)) / r]
How do you find the Present Value of an Annuity Due? - CORRECT ANSWER P = (PMT
[(1 - (1 / (1 + r)n)) / r]) x (1+r)
True/False: The PV of an annuity due will be less than that of a similar ordinary annuity. -
CORRECT ANSWER False (Greater than)
In 1749 the British government issued some bonds whose proceeds were used to pay off other
British bonds and since this action consolidated the government's debt, the new bonds were
called ___________. - CORRECT ANSWER Consols
Promise to pay interest perpetually - CORRECT ANSWER Perpetuity
The interest rate that is actually earned or paid on an investment, loan, or other financial product
due to the result of compounding over a given time period - CORRECT
ANSWER Effective Annual Rate (EAR)
What is another name for Effective Annual Rate (EAR)? - CORRECT ANSWER EFF%
(Effective Percentage)
, Calculation for Effective Annual Rate (EAR). - CORRECT ANSWER (1 + Inom/M)^M -
1.0
Inom/M = Periodic rate
M = number of periods
When should Effective Annual Rate be used ? - CORRECT ANSWER Should be used to
compare the effective cost or rate of return on loans or investments when payment periods differ
A loan that is to be repaid in equal amounts on a monthly, quarterly, or annual basis - CORRECT
ANSWER Amortized Loan
Each payment will consist of two parts - interest and repayment of principal - the breakdown is
shown on a __________________________. - CORRECT ANSWER Amortization
Schedule
How does Time effect present and future values of cash flows? - CORRECT
ANSWER The later you receive the payment, the lower the present value of the cash flow
How does Interest Rate effect present and future values of cash flows? - CORRECT
ANSWER The higher the interest rate, the higher the value of the cash flows
Long term contract which a borrower agrees to make payments of interest and principal, on
specific dates, to the holders of the bond - CORRECT ANSWER Bond
Issued by the US federal government, having no default risk, but are not free of all risk (aka
government bond) - CORRECT ANSWER Treasury Bond
A bond issued by a corporation in order to raise financing for a variety of reasons such as to
ongoing operations, M&A, or to expand business; exposed to default risk, or credit risk -
CORRECT ANSWER Corporate Bond
ACTUAL QUESTIONS AND CORRECT
ANSWERS
Rate of return you could earn on an alternative investment of similar risk - CORRECT
ANSWER Opportunity Cost
Finding Present Value is called ______________, the reverse of compounding. - CORRECT
ANSWER Discounting
If payments are equal and are made at fixed intervals, then the series is an _____________. -
CORRECT ANSWER Annuity
If payments occur at the end of each period, then it is an ___________________. - CORRECT
ANSWER Ordinary Annuity
Mortgages, car loans, and student loans.
What type of annuities are these? - CORRECT ANSWER Ordinary Annuity
If payments are made at the beginning of each period, then it's an _______________. -
CORRECT ANSWER Annuity Due
Rental payments, life insurance.
What type of annuities are these? - CORRECT ANSWER Annuity Due
How do you find the Future Value of an Ordinary Annuity (END)? - CORRECT
ANSWER FV = PMT[((1+r)^n - 1)/r]
,PV = 0 (for calculator)
How do you find the Future Value of an Annuity Due (BEGIN)? - CORRECT ANSWER P
= (PMT [((1 + r)n - 1) / r])(1 + r)
True/False: The FV of an annuity due will be greater than that of a similar ordinary annuity. -
CORRECT ANSWER True
How do you find the Present Value of an Ordinary Annuity? - CORRECT ANSWER P=
PMT [(1 - (1 / (1 + r)n)) / r]
How do you find the Present Value of an Annuity Due? - CORRECT ANSWER P = (PMT
[(1 - (1 / (1 + r)n)) / r]) x (1+r)
True/False: The PV of an annuity due will be less than that of a similar ordinary annuity. -
CORRECT ANSWER False (Greater than)
In 1749 the British government issued some bonds whose proceeds were used to pay off other
British bonds and since this action consolidated the government's debt, the new bonds were
called ___________. - CORRECT ANSWER Consols
Promise to pay interest perpetually - CORRECT ANSWER Perpetuity
The interest rate that is actually earned or paid on an investment, loan, or other financial product
due to the result of compounding over a given time period - CORRECT
ANSWER Effective Annual Rate (EAR)
What is another name for Effective Annual Rate (EAR)? - CORRECT ANSWER EFF%
(Effective Percentage)
, Calculation for Effective Annual Rate (EAR). - CORRECT ANSWER (1 + Inom/M)^M -
1.0
Inom/M = Periodic rate
M = number of periods
When should Effective Annual Rate be used ? - CORRECT ANSWER Should be used to
compare the effective cost or rate of return on loans or investments when payment periods differ
A loan that is to be repaid in equal amounts on a monthly, quarterly, or annual basis - CORRECT
ANSWER Amortized Loan
Each payment will consist of two parts - interest and repayment of principal - the breakdown is
shown on a __________________________. - CORRECT ANSWER Amortization
Schedule
How does Time effect present and future values of cash flows? - CORRECT
ANSWER The later you receive the payment, the lower the present value of the cash flow
How does Interest Rate effect present and future values of cash flows? - CORRECT
ANSWER The higher the interest rate, the higher the value of the cash flows
Long term contract which a borrower agrees to make payments of interest and principal, on
specific dates, to the holders of the bond - CORRECT ANSWER Bond
Issued by the US federal government, having no default risk, but are not free of all risk (aka
government bond) - CORRECT ANSWER Treasury Bond
A bond issued by a corporation in order to raise financing for a variety of reasons such as to
ongoing operations, M&A, or to expand business; exposed to default risk, or credit risk -
CORRECT ANSWER Corporate Bond
