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chapter 5

QuestionAnswer
Which one of the following best defines an annuity? a level stream of payments occurring at equal intervals of time
An annuity for which the cash flows occur at the beginning of each time period is called a(n): annuity due.
An annuity where the cash flows continue forever is called a(n): perpetuity.
In Canada and the United Kingdom, a perpetuity is also called a(n): consol.
The quoted interest rate which is expressed in terms of the interest payment made each period is called the: stated interest rate.
The effective annual rate is defined as the interest rate that is: expressed as if it were compounded once per year.
The annual percentage rate is the interest rate: charged per period multiplied by the number of periods per year.
A pure discount loan can be defined as the present value of a single lump sum to be repaid at some time in the future.
A loan which requires the borrower to pay interest each period and to pay the entire principal at some point in the future is called a(n): interest-only loan
A type of loan where the principal amount is reduced over the life of the loan by the borrower making regular payments is called a(n): amortized loan.
The future value of a series of cash flows over time can be computed by: summing the future values of each of the individual cash flows.
All else constant, the present value of a stream of equal cash flows occurring at equal intervals of time will increase when the:I. discount rate is increased. II. discount rate is decreased. III. number of time periods is increased. IV. number of t II and III only
The present value of a stream of equal cash flows occurring at regular intervals of time can be computed using a financial calculator. In this case, the amount of each cash flow is input as the: payment.
The present value of an annuity considers which of the following factors? I. the timing of each cash flow II. the amount of each cash flow III. the discount rate IV. the number of cash flows I, II, III, and IV
Which one of the following is the correct formula for the present value of an ordinary annuity? C × {{1−[1/(1+r)t]}/r}
Which of the following will increase the value of an annuity present value interest factor?I. an increase in the interest rate II. a decrease in the interest rate III. an increase in the number of time periods IV. a decrease in the number of time pe II and III only
Which one of the following is an annuity but NOT a perpetuity? $600 on the last day of each month for two years
An increase in the amount of an annuity payment will: increase the future value of the annuity.
To qualify as an annuity, the cash flows must: I. be equal in amount. II. occur at equal intervals of time. III. be inflows for a firm. IV. be related to a loan of money. I and II only
Which one of the following statements is correct concerning an annuity interest rate? The annuity interest rate is the discount rate used to find the present value of the annuity payments.
Which one of the following statements is correct concerning the annuity interest rate? An increase in the annuity interest rate will increase the annuity future value factor.
Which one of the following is the correct formula for computing the future value of an annuity? C × (Future value factor − 1) / r
The future value of an annuity will decrease when either the: number of periods decreases or the interest rate declines.
You are comparing two separate investments. Each one is for a period of 10 years and pays $2,500 a year. You require a 10 percent return on these investments. Investment A pays at the beginning of each year and investment B pays at the end of each year. G d. Investment A has both a higher present value and a higher future value than investment B.
The difference between an ordinary annuity and an annuity due is the: timing of the annuity payments.
Which one of the following is an annuity due? $600 paid at the beginning of every quarter for five years, starting today
Which of the following can you calculate? I. present value of an ordinary annuity II. present value of a perpetuity III. future value of an annuity due IV. future value of a perpetuity I, II, and III only
Which one of the following is generally valued as a perpetuity? preferred stock
An investment states that it will pay interest of 8 percent with payments being made on a quarterly basis. The 8 percent is the: stated rate.
Which one of the following has the highest effective annual rate? 6 percent compounded daily
When comparing loans of equal amounts and equal time periods, you should select the loan that has the lowest: effective annual rate.
A credit card has an APR of 18 percent and charges interest monthly. The effective annual rate on this account will: be greater than 18 percent.
Which one of the following statements is correct concerning annual percentage rates (APRs)? The APR is equal to the monthly interest rate multiplied by 12 for a credit card that computes interest on a monthly basis.
If two loans have same annual percentage rates, then: the borrower might still save money by selecting one loan over the other.
. Theresa borrows $800 today in exchange for one payment of $1,000 five years from now. This is an example of a(n): pure discount loan.
Phil would like to borrow some money today but not make any payments at all for three years. At the end of the three years, he would like to pay the loan in full in one lump sum payment. What type of loan should Phil request from his bank? pure discount loan
Licheng borrowed $1,000 from his bank three years ago. The interest rate on the loan was 10 percent. Licheng has been paying annual payments of $100 on this loan. This year, he must pay $1,100 to the bank. Licheng took out a(n): interest-only loan.
Today, you borrowed $1,000 from your bank for five years at 8 percent interest. The loan requires that you make a payment of $80 one year from today. Based on this information, it appears that you have a(n): interest-only loan.
Theo just financed a new car through his credit union. His car loan requires payments of $420 a month for five years. Assuming that all payments are paid timely, his last payment will pay off the car loan in full. Theo has a(n): amortized loan.
Peter borrowed $10,000 from his bank and agreed to pay $1,000 on the principal plus the interest each year. This is an example of a(n): amortized loan.
Created by: martin.2021
 

 



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