Lecture 1

Question 1

Future value =

Answer 1

Amount to which investment will grow after earning interest

Question 2

Simple interest =

Answer 2

Interest earned only on original investment

Question 3

Compound interest =

Answer 3

Interest earned on interest.

Question 4

Simple interest formala =

Answer 4

F = P(1 + i n)

Question 5

Compound interest formula =

Answer 5

F = P(1 + i)^n

Question 6

Interest rate is considered..

Answer 6

The risk

Question 7

The greater the risk

Answer 7

Greater the reward

Question 8

Multiple cash flow calculations

Answer 8

Add together individual calculations

Question 9

Present value =

Answer 9

Value today of a future cash flow

Question 10

Why is the present value needed?

Answer 10

So that managers can make decisions today

Question 11

Annuities =

Answer 11

Equally spaced level stream of cash flows for a limited period of time

Question 12

Perpetuities =

Answer 12

A stream of level cash payments that never end

Question 13

Perpetuity formula =

Answer 13

P = C/ i

Question 14

Discounting periods are used when

Answer 14

The interest is charged more frequently than once per year eg quarterly/ monthly

Question 15

When the compounding period approaches infinity, future value =

Answer 15

F = Pe^in (e = exponential function)