Basic concepts Finance, or financial management, requires the knowledge and precise use of the language of the field. Select the ten terms relating to the basic terminology and concepts of the time value of money on the right with the descriptions of the term on the left. Read each description carefully and select the term that best corresponds to the definition given. (Note: These are not necessarily complete definitions, but there is only one possible term for each definition.) Description Term
A table that reports the results of the disaggregation of each payment on an amortized loan, such as a mortgage, into its interest and loan repayment components
A loan in which the payments include interest as well as loan principal
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 process that involves calculating the current value of a future cash flow or series of cash flows based on a certain interest rate
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 A6% return that you could have earned if you had made a particular investment
A concept that maintains that the owner of a cash flow will value it differently, depending on when it occurs
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
A cash flow stream that is generated by a share of preferred stock that is expected to pay dividends every quarter indefinitely
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
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?
a. PMT x {1 - [1 / (1 + r)"]}
b. PMT ({1 - [1 /(1 + r)" ]}/r) x (1 + r)
c. PMT/r
d. PMT x {[(1 + r)" - 1]/r} x (1 + r)