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 D. Annual percentage rate E. Description A cash flow stream that is generated by a share of preferred stock that is expected to pay dividends every quarter indefinitely. 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. 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. 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). 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 6% return that you could have earned if you had made a particular investment. A type of security that is frequently used in mortgages and requires that the loan payment contain both interest and loan principal. 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 cash flows that occur at the end of each of the equally spaced intervals (such as daily, monthly, quarterly, and so on). 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. Annuity due F. Perpetuity G. Future value 14 H. Amortization schedule I. II 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 present value of an annuity due? O PMT x {[(1 + r)" - 1]/r} x (1 + r) O PMT x {1 - [1/(1 + r)"]} O PMT/r O PMT x({1 - [1/(1 + r)"]}/r) x (1 + r)