ECON TERMS

Question 1

amount of money earned by a given capital

Answer 1

interest

Question 2

interest directly proportional to the length of time and the amount of principal borrowed

Answer 2

simple interest

Question 3

computed on the basis of one banker’s year

Answer 3

ordinary simple interest

Question 4

computed based on exact number of days

Answer 4

exact simple interest

Question 5

interest is computed every end of each interest period and the interest earned for that period is added to the principal

Answer 5

compound interest

Question 6

specifies the rate of interest and the number of interest periods per year

Answer 6

nominal rate of interest

Question 7

the actual rate of interest on the principal for one year

Answer 7

effective rate of interest

Question 8

consists of a series of equal payments made at equal intervals of time

Answer 8

annuity

Question 9

equal payments are made at the end of each payment period starting from the first period

Answer 9

ordinary annuity

Question 10

payment of the first amount is deferred a certain number of periods after the first

Answer 10

deferred annuity

Question 11

payments are made at the start of each period, beginning from the first period

Answer 11

annuity due

Question 12

periodic payments continue indefinitely

Answer 12

perpetuity

Question 13

a sequence consisting of end-of-period payments, where each payment increases or decreases by a constant value

Answer 13

uniform arithmetic gradient

Question 14

a sequence consisting of end-of-period payments, where each payment increases or decreases by a fixed percentage

Answer 14

geometric gradient

Question 15

sum of the first cost and the present worth of all future payments and replacements which is assumed to continue forever

Answer 15

capitalized cost

Question 16

increase in the amount of money needed to purchase same amount of goods or services

Answer 16

inflation

Question 17

results in a decrease in purchasing power

Answer 17

inflation

Question 18

decrease in the value of an asset due to usage or passage of time

Answer 18

depreciation

Question 19

a method of determining when costs exactly equal revenue

Answer 19

break-even analysis

Question 20

attempts to identify the relationship between the cost and benefits of a proposed project

Answer 20

benefit-cost ratio (BCR)

Question 21

benefit-cost ratio (BCR) _____ than 1 have greater benefits than costs; hence, the project should be considered

Answer 21

greater

Question 22

the break-even interest rate, i, which equates the present worth of a project’s cash outflows to the present worth of its cash inflows

Answer 22

rate of return

Question 23

measures the yield as a percentage of investment over the life of a project

Answer 23

rate of return

Question 24

minimum return the company will accept on the money it invests (usually calculated by financial analysts)

Answer 24

minimum attractive rate of return (MARR)

Question 25

it is the **same as the interest rate** used for **present worth**, **annual worth** and **future worth analysis**

Answer 25

minimum attractive rate of return (MARR)

Question 26

the **period** required to **recover the total investment**

Answer 26

recovery period

Question 27

the **length of time** required to **recover fixed capital**

Answer 27

payback period

Question 28

the **capital** which is **invested in acquiring fixed assets for business** such as a building, equipment, machinery, etc.

Answer 28

fixed capital

Question 29

represents the **amount of money** utilized for **financing day to day business operations**

Answer 29

working capital

Question 30

it is **a form of loan** where the **holder** is the **lender (creditor)**, the **issuer** is the **borrower (debtor)**, and the **coupon** is the **interest**

Answer 30

bonds

Question 31

type of **security** that **signifies ownership** in a corporation and **represents a claim** on part of the **corporation's assets and earnings**

Answer 31

stock

Question 32

an **interest transaction** where the **price of the corresponding loan** is **set down** by **subtracting the discount** from the amount due

Answer 32

simple discount rate

Question 33

the **corresponding interest** is **credited at the beginning of the discount period** (interest-in-advance)

Answer 33

simple discount rate

Question 34

the **interest** is **credited in arrears** at the **end of the interest period**

Answer 34

simple interest model