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.	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		B.	A rate that represents the return on an investors best available alternative investment of equal risk.
Amortized loan		C.	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.
Ordinary annuity		D.	A loan in which the payments include interest as well as loan principal.
Annual percentage rate		E.	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.
Annuity due		F.	A series of equal cash flows that occur at the beginning of each of the equally spaced intervals (such as daily, monthly, quarterly, and so on).
Perpetuity		G.	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.
Future value		H.	A series of equal (constant) cash flows (receipts or payments) that are expected to continue forever.
Amortization schedule		I.	A process that involves calculating the current value of a future cash flow or series of cash flows based on a certain interest rate.
Opportunity cost of funds		J.	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.

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 a lump sum?

FV/(1 + r)nn

PV x (1 + r)nn

PMT x {1 [1/(1 + r)nn]}/r

PMT/r