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 Description Discounting A. Time value of money B. 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 type of security that is frequently used in mortgages and requires that the loan payment contain both interest and loan principal. A value that represents the interest paid by borrowers or earned by lenders, expressed as a percentage of the amount borrowed or invested over a 12-month period. The process of determining the present value of a cash flow or series of cash flows to be received or paid in the future. Amortized loan C. Ordinary annuity D. Annual percentage rate E. Annuity due F. Perpetuity G. The name given to the amount to which a cash flow, or a series of cash flows, will grow over a given period of time when compounded at a given rate of interest. A 6% return that you could have earned if you had made a particular investment. The concept that states that the timing of the receipt or payment of a cash flow will affect its value to the holder of the cash flow. 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. Future value 1 H. Future value H. 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. Amortization schedule I. A series of equal (constant) cash flows (receipts or payments) that are expected to continue forever. Opportunity cost of funds J. 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). 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? PMT X ({1 - [1/(1 + r)"]}/r) PMT X ({1 - [1/(1 + r)"]}/r) x (1 + r) PMT/r PMT x {[(1 + r)" 1]/r} x (1 + r)