1. Basic concepts Finance, or financial management, requires the knowledge and precise use of the language of the field. Match the terms relating to the basic terminology and concepts of the time value of money on the left with the descriptions of the terms on the right. Read each description carefully and type the letter of the description in the Answer column next to the correct term. These are not necessarily complete definitions, but there is only one possible answer for each term. Term Answer Discounting A. Description A cash flow stream that is created by a lease that requires the payment to be paid on the first of each month and a lease period of three years. Time value of money J B. Amortized loan C. A cash flow stream that is created by an investment or loan that requires its cash flows to take place on the last day of each quarter and requires that it last for 10 years. A schedule or table that reports the amount of principal and the amount of interest that make up each payment made to repay a loan by the end of its regular term. A cash flow stream that is generated by a share of preferred stock that is expected to pay dividends every quarter indefinitely. A loan in which the payments include interest as well as loan principal. Ordinary annuity D. Annual percentage rate E. Annuity due F. ||||| A process that involves calculating the current value of a future cash flow or series of cash flows based on a certain interest rate. The concept that states that the timing of the receipt or payment of a cash flow will affect its value to the holder of the cash flow. Perpetuity G. Future value H. An interest rate that reflects the return required by a lender and paid by a borrower, expressed as a percentage of the principal borrowed. A rate that represents the return on an investor's best available alternative investment of equal risk. Amortization schedule I. Opportunity cost of funds J. The name given to the amount to which a cash flow, or a series of cash flows, will grow over a given period of time when compounded at a given rate of interest. Time value of money calculations can be solved using a mathematical equation, a financial calculator, or a spreadsheet. Which of the following equations can be used to solve for the present value of an ordinary annuity? PMT/r PMT x {[(1 + r)" 1]/r} PMT X{1 - [1/(1 + r)"]}/r PMT X{[(1 + r)" 1]/r} x (1 + r)