Finance2

Which of the following is not true when developing a time line? Cash outflows are designated with a positive number
People borrow money because they expect… their purchases to give them the satisfaction in the future that compensates them for the interest payments charged on them
A payment that your bank credits to your account in one year is known as a: Future Value
How are future values affected by changes in interest rates? The higher the interest rate, the largger the future value will be.
How are present values affected by changes in interest rates? The lower the interest rate, the larger the present value will be.
We call the process of earning interest on both the original deposit and on the earlier interest payments: compounding
Interest earned on the original deposit is called: simple interest
The process of figuring out how much an amount that you expect to receive in the future is worth today is called: discounting
The interest rate, i, which we use to calculate present value, is often referred to as the: discount rate
Who is credited with popularizing the Rule of 72? Albert Einstein
The Rule of 72 is a simple math approximation for: The number of years required to double an investment.
With regard to money deposited in a bank, future values are: larger than present values
Earnings just one percent more in interest rate every year results in much higher future values over time, and: time has the same effect on future values over time
A dollar paid (or received) in the future is: not worth as much as a dollar today
Because we compute interest rates using beginning-period value of an investment, investments that feature gains and losses may become asymmetric between gains and losses
When computing the rate of return from selling an investment, the number of years between the present and future cash flows is an important factor in determining the annual rate earned
When calculating the number of years needed to grow an investment to a specific amount of money: the higher the interest rate the shorter the time period needed to achieve the growth
Moving cash flows from one point in time to another requires us to use both present and future value equations
All TVM equations that you will encounter only require figuring out what is unknown in the situation and: solving for that one unknown factor
The longer the money can earn interest, the greater the compounding effect
When saving for future expenditures, we add the ______________ of contributions over time to see what the total will be worth at some point in time> Future value
When moving from the left to the right of a time line, we are using: compound interest to calculate future values
Level sets of frequent, consistent cash flows are called annuities
The length of time of the annuity is very important in accumulating wealth within an annuity. What other factor also has this effect? interest rate for compounding
In order to discount multiple as flows to the present, one would use the appropriate discount rate
Your credit rating and current economic conditions will determine the interest rate that a lender will offer
When interest rates are lower, borrowers can borrow more money
The present value of annuity payments made far into the future are worth very little today
While the future value will increase as computing frequency increases, the size of each increase in the future value: diminishes as compounding frequencies increase
Compounding monthly versus annually causes the interest rate to be effectively higher, and thus the future value grows
The simple form of an annualized interest rate is called the annual percentage rate (APR). The effective annual rate (EAR) is a more accurate measure of the interest rate paid for monthly compounding.
You can more easily evaluate investment opportunities for both businesses and individual applications if you can compute the implied rate of return in a series of cash flows
People refinance their home mortgages when rates fall
Loan amortization schedules show both the principal balance and interest paid per year
When you take out a loan for a car or home mortgage, you will usually find monthly payments at today’s interest rates more relevant for your budget
When you get you credit card bill, it will offer a minimum payment, which usually only pays the accrued interest and a small amount of principal
When you get your credit card bill, if you make a payment larger than the minimum payment you will reduce the payoff time

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