Appendix E

Question 1

Interest Definition

Answer 1

The payment for the use of another party’s money

Question 2

Interest is generally stated as a _____ rate (time period)

Answer 2

Annual

Question 3

Interest is the difference between which values?

Answer 3

The principal and the total amount repaid/collected

Question 4

Principal definition

Answer 4

The amount borrowed or invested

Question 5

Simple Interest Formula

Answer 5

Principal x Rate x time
P x I x N

Question 6

Simple interest definition

Answer 6

Interest computed on the principal amount only for one period

Question 7

Compound interest definition

Answer 7

Interest computed on the principal AND on any interest earned that has not been paid/withdrawn

Question 8

Compound interest uses the ________ at each year end to computer interest in the succeeding year

Answer 8

Accumulated balance

Question 9

Accumulated balance definition

Answer 9

Principal plus interest to date

Question 10

Which interest is most commonly used?

Answer 10

Compound

Question 11

When is simple interest generally applicable?

Answer 11

Only short term situations of a year or less

Question 12

Future value of a single amount definition

Answer 12

The value at a future date of a given amount invested, assuming compound interest

Question 13

Future value formula

Answer 13

P x (1 + i) to the Nth

Question 14

Annuity definition

Answer 14

A series of payments or receipts of equal dollar amounts

Question 15

Future value of an annuity definition

Answer 15

The sum of all the payments (receipts) plus the accumulated compound interest on them

Question 16

What info do you need to calculate the future value of an annuity which you don’t need for future value of a single amount

Answer 16

The number & amounts of periodic payments/receipts

Question 17

When is a manual calculation of each individual future value cash flow required?

Answer 17

When the periodic payments/receipts are not equal in each period.

Question 18

The future value an annuity of 1 table assumes that the payment/receipts to be made when?

Answer 18

At the end of the period

Question 19

Present value definition

Answer 19

The value now of a given amount to be paid or received in the future assuming compound interest

Question 20

Discounting the future amount definition

Answer 20

The process of determining the present value

Question 21

When are present value computations used?

Answer 21

1. Determine the market price of a bond
2. Determine the amount to be reported for notes payable and lease liabilities
3. Capital budgeting and other investment proposals
4. All rate of return and internal rate of return computations

Question 22

Present Value Formula

Answer 22

FV / (1 + i) to the Nth

Question 23

What are the percentage columns known as on the “Present value of 1” table?

Answer 23

Discount rates

Question 24

For the present value of 1, the further into the future (# of periods) that the future value is, the _______ the present value

Answer 24

Smaller

Question 25

When are present values of an annuity used?

Answer 25

1. Loan agreements
2. Installment sales
3. Mortgage notes
4. Lease/rental contracts
5. Pension obligations

Question 26

Present value of an annuity definition

Answer 26

The value now of a series of future receipts or payments, discounted assuming compound interest

Question 27

When making calculations and the time frame is less than one year, what do you do?

Answer 27

Convert the annual interest rate to the applicable time frame

Question 28

Semiannually is ___ times a year

Answer 28

2

Question 29

Biannually is ___ times a year

Answer 29

2

Question 30

When an investor’s market interest rate is equal to the bond’s contractual interest rate, the present value of bonds will ________ the face value of the bonds

Answer 30

Equal

Question 31

The present value of a long term note or bond is a function of which 3 variables?

Answer 31

1. The payment amounts
2. The length of time until the amounts are paid
3. The discount rates

Question 32

To calculate the present value of a long term note or bond, what two elements make up the “Payment Amounts”

Answer 32

1. A series of interest payments (the annuity)
2. The principal amount (a single sum)