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 B A Description One of the four major time value of money terms; the amount to which an individual cash flow or series of cash payments or receipts will grow over a period of time when earning interest at a given rate of interest. The process of determining the present value of a cash flow or series of cash flows to be received or paid in the future. A rate that represents the return on an investor's best available alternative investment of equal risk. Time value of money B. Amortized loan Ordinary annuity D. Annual percentage rate E. A value that represents the interest paid by borrowers or earned by lenders, expressed as a percentage of the amount borrowed or invested over a 12-month period. A series of equal cash flows that occur at the beginning of each of the equally spaced intervals (such as daily, monthly, quarterly, and so on). A concept that maintains that the owner of a cash flow will value it differently, depending on when it occurs. A series of equal (constant) cash flows (receipts or payments that are expected to Annuity due F. Perpetuity G. 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 annuity due? PMT X ({1 - [1/(1 + r)"]}) PMT x({1 - [1/(1 + r)"]}/r) x (1 + r) PMT/ PMT x {[(1 + r)" - 1]/r} x (1 + r) 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 B A Description One of the four major time value of money terms; the amount to which an individual cash flow or series of cash payments or receipts will grow over a period of time when earning interest at a given rate of interest. The process of determining the present value of a cash flow or series of cash flows to be received or paid in the future. A rate that represents the return on an investor's best available alternative investment of equal risk. Time value of money B. Amortized loan Ordinary annuity D. Annual percentage rate E. A value that represents the interest paid by borrowers or earned by lenders, expressed as a percentage of the amount borrowed or invested over a 12-month period. A series of equal cash flows that occur at the beginning of each of the equally spaced intervals (such as daily, monthly, quarterly, and so on). A concept that maintains that the owner of a cash flow will value it differently, depending on when it occurs. A series of equal (constant) cash flows (receipts or payments that are expected to Annuity due F. Perpetuity G. 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 annuity due? PMT X ({1 - [1/(1 + r)"]}) PMT x({1 - [1/(1 + r)"]}/r) x (1 + r) PMT/ PMT x {[(1 + r)" - 1]/r} x (1 + r)
