Finance 101 Test 1

Starting to invest early for retirement REDUCES the benefits of compound interest False
Timelines can be constructed for annuities where the payments occur at either the beginning or the end of the periods True
Some of the cash flows on a time line can be in the form of annuity payments while OTHERS can be uneven amounts True
All other things held constant, the present value of a given annual annuity decreases as the number of periods per year increases. True
A timeline is not meaningful unless all cash flows occur annually False
Time lines are useful for visualizing complex problems prior to doing actual calculations True
Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly False
Time lines cannot be constructed for annuities where the payments occur at the beginning of the periods False
Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts False
The cash flows for an ordinary annuity all occur at the beginning of the periods False
If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity False
The cash flows for an annuity must all occur at the ends of the periods False
The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month True
If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity False
Calculated value of investment lowers as… The discount rate increases.
Starting to invest early for retirement INCREASES the benefits of compound interest True
Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly False
Some of the cash flows shown on a time line can be in the form of annuity payments but NONE can be uneven amounts False
If a bank compounds savings accounts quarterly, the effective annual rate will EXCEED the nominal rate True
The present value of a future sum DECREASES as either the discount rate or the number of periods per year increases, other things held constant True
The present value of a given annual annuity INCREASES as the number of periods per year increases False
AS a result of compounding, the effective annual rate on a bank deposit is always equal to or greater than the nominal rate on the deposit True
When a loan is amortized, a relatively high percentage of the payment goes to reduce the outstanding principal in the early years, and the principal repayment’s percentage declines in the loan’s later years False
The payment made each period on an amortized loan is constant, and it consists of some interest and some principal. The closer we are to the end of the loan’s life, the smaller the percentage of the payment that will be a repayment of a principal. False
A time line is not meaningful unless all cash flows occur annually False
Time lines are not useful for visualizing complex problems prior to doing actual calculations False
Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly False
Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods True
Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts False
As calculated value of investment increases… The discount rate decreases.
The cash flows for an ordinary annuity all occur at the beginning of the periods False
If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity False
The cash flows for an annuity due must all occur at the beginning of the periods True
The cash flows for an annuity may vary from period to period, but they must occur at regular intervals, such as once a year or once a month False
If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity False

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