fin202 chap 6

Calculating the present and future values of multiple cash flows is relevant

• A) for businesses only.

• B) for individuals only

• C) for both individuals and businesses.

• D) none of the above.

Cash flows associated with annuities are considered to be

• A) an uneven cash flow stream.

• B) a cash flow stream of the same amount (a constant cash flow stream).

• C) a mix of constant and uneven cash flow streams.

• D) none of the above.

Which one of the following statements is true about amortization?

• A) With an amortized loan, a bigger proportion of each month's payment goes toward interest in the early periods

• B) With an amortized loan, a bigger proportion of each month's payment goes toward interest in the later periods.

• C) With an amortized loan, a smaller proportion of each month's payment goes toward interest in the early periods.

• D) None of the above.

Which one of the following steps is NOT involved in solving future value problems?

• A) First, draw a time line to make sure that each cash flow is placed in the correct time period.

• B) Second, discount each cash flow for its time period.

• C) Third, add up the values.

• D) All of the above are necessary steps.

What is the formula for calculating present value (PV)?

• A) PV = FV × (1 + r)^n

• B) PV = FV / (1 + r)^n

• C) PV = FV + (r × n)

• D) PV = FV - (r × n)

The true cost of borrowing is the

• A) annual percentage rate.

• B) effective annual rate.

• C) quoted interest rate.

• D) periodic rate.

The annuity transformation method is used to transform

• A) a present value annuity to a future value annuity

• B) a present value annuity to an annuity due.

• C) an ordinary annuity to an annuity due.

• D) a perpetuity to an annuity.

The future value of multiple cash flows is

• A) greater than the sum of the cash flows.

• B) equal to the sum of all the cash flows

• C) less than the sum of the cash flows

• D) none of the above.

If your investment pays the same amount at the beginning of each year for a period of 10 years, the cash flow stream is called

• A) a perpetuity.

• B) an ordinary annuity

• C) an annuity due.

• D) none of the above.

Calculating the present and future values of multiple cash flows is relevant

• A) for businesses only.

• B) for individuals only

• C) for both individuals and businesses.

• D) none of the above.