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Principles Of Finance Final Exam With Complete Solutions And Correct Answers Latest Version
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Principles Of Finance Final Exam With Complete Solutions And Correct Answers Latest Version
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Principles Of Finance Final Exam WithComplete Solutions And Correct Answers
Latest Version
Why does money have time value? Answer: same reasons interest rates are greater than zero
- Risk that one exposes themselves to when they save or invest
- Inflationary Expectations because one must forecast when saving/investing
- Opportunity Cost because when one saves/invests one delays current consumption
- People have positive time preference for consumption—will delay consumption but only if they're
compensated
Simple Interest Answer: interest earned from initial investment
- Calculations: Initial deposit/principal (P) x annual interest rate (i) x periods/years (n)
Compound Interest Answer: finding the future value of a single or series of cash flows
- More frequently interest is compounded the more interest earned on investment
Intra-Year Compounding Answer: interest paid more than once a year (semi-annually, quarterly,
etc.)
Effective Rate of Interest/Annual Percent Yield (APY) Answer: when actual interest rate is higher
than the stated rate
- The more frequently the periods compounded are the higher APY will be
- Calculations: 2nd [ICONV]; enter NOM %(nominal interest rate or stated rate); enter C/Y (# times
compounded per year); use up/down arrows to find EFF then press CPT
2024
, Annuity Answer: series of cash flows; inflows or outflows
- When finding annuities, a financial calculator can be used if: (all criteria must be met)
- Cash flows are identical
- Interval between cash flows is the same
- There are no gaps between annuity (one or more points in time where there are no cash flows)
Is LAST cash flow being compounded for one period? Answer: Future Value
- NO—Ordinary Annuity: makes payments at end of period
- YES—Annuity Due: makes payments at beginning of period
-- Compounded an additional time
-- Worth more
Is FIRST cash flow being discounted for one period? Answer: PRESENT VALUE
- YES—Ordinary Annuity:
- NO (occurs today)—Annuity Due:
-- Discounted fewer times
-- Worth more
Sinking Fund Problems Answer: Given the future value & need to find annuity payments that reach
the future value
Capital Recovery Answer: Given a present value; account balance declines after each cash flow until
it reaches zero
Fully Amortized Loans Answer: most consumer loans; usually monthly payments→ first payment
usually due in one month (ordinary annuity)
2024
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