1. The time value of money plays an important role in which of the following:
a. understanding the effective rate on a business loan
b. understanding the composition of a mortgage payment
c. determining the true rate of return on an investment
d. all of the above
2. Process of calculating future value of money from present value is classified as
compounding
discounting
money value
stock value
3. Future value of interest if it is calculated once a year is classified as
One time compounding
annual compounding
semiannual compounding
monthly compounding
4. Earning interest on interest is called
Extra Interest
Simple Interest
Inflation Interest
Compound Interest
5. Lottery payoffs and payment for rental apartments are examples of
lump sum amount
deferred annuity
annuity due
payment fixed series
6. Interest paid (earned) on only the original principal borrowed (lent) is often referred to as __________.
a. present value
b. simple interest
c. future value
d. compound interest
7. If interest or compounding is done on other than an annual basis, adjust by:
a. dividing the number of years by the number of compounding periods
b. multiplying the number of years by the number of compounding periods
c. dividing the interest rate by the number of compounding period
d. multiplying the years and dividing the interest rate by the number of compounding periods
8. To investors (savings accounts, certificate of deposit, stocks), the most desirable compounding period is:
a. Annually
b. semi-annually
c. monthly
d. daily