1. Basic concepts Finance, or financial management, requires the knowledge and precise use of the language of the field. Match the terms relating to the basic terminology and concepts of the time value of money on the left with the descriptions of the terms on the right. Read each description carefully and type the letter of the description in the Answer column next to the correct term. These are not necessarily complete definitions, but there is only one possible answer for each term. Term Answer Discounting A. Time value of money B. Amortized loan C. Ordinary annuity Annual percentage rate D. E. Description A series of equal cash flows that occur at the end of each of the equally spaced intervals (such as daily, monthly, quarterly, and so on). A rate that represents the return on an investor's best available alternative investment of equal risk. 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 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 concept that maintains that the owner of a cash flow will value it differently, depending on when it occurs. A series of equal (constant) cash flows (receipts or payments) that are expected to Annuity due F. Perpetuity G. Future value H. Amortization schedule continue forever. 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. Opportunity cost of funds J. 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 future value of an annuity due? PMT x {[(1 + r)" - 13/r} PMT x({1 - [1/(1 + r)"]}/r) x (1 + r) FV/(1 + r)" PMT x {[(1 + r)" - 1]/r} x (1 + r)