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 rigt 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. Answer Term Discounting Description 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 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). The process of determining the present value of a cash flow or series of cash flows to be Time value of money Amortized loan Amortized loan Ordinary annuity D. Annual percentage rate E. Annuity due F. The process of determining the present value of a cash flow or series of cash flows to be received or paid in the future. A series of equal (constant) cash flows (receipts or payments) that are expected to continue forever 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. 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 schedule or table that reports the amount of principal and the amount of Interest that make up each payment made to repay a loan by the end of its regular term. A loan in which the payments include interest as well as loan principal. A 6% return that you could have earned if you had made a particular investment. 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. Perpetuity G. Future value H. I. Amortization schedule Opportunity cost of funds 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 ordinary annuity? O FV/(1 + r)" O PMT * {[(1 + r)" - 1/r) (1 + ) O PMT X (1 - [1/(1+r)"}/ O PMT * {[(1 + r)" - 11/1) Grade It Now Save & Continue Continue without saving