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Business Finance 1 Dersi 4. Ünite Sorularla Öğrenelim

Time Value Of Money

1. Soru

What does The Future Value refer to?

Cevap

The Future Value (FV) is the amount of money an investment will grow to over a period of time, at a given interest rate (r).


2. Soru

To what a good understanding of the Time Value of Money help?

Cevap

A good understanding of the Time Value of Money will help you in making better decisions when faced with questions similar to those above.


3. Soru

What is the formula for the FV?

Cevap

The FV formula for the single period case may be stated in the following ways: FV = PV + PV * r FV = PV(1 + r)


4. Soru

What does simple interest mean?

Cevap

Simple interest is the interest that one earns only from the initial capital (principal). This is the interest that you would earn in a bank account that takes out the interest earned and only renews the time deposit for the capital.


5. Soru

What does compound interest mean?

Cevap

Some authors use the term compound interest only to refer to the interest on interest). The calculation of Future Values that include the interest on interest is called compounding.


6. Soru

What does Present Value formula refer to?

Cevap

Present Value formula is simply an algebraic restatement of the Future Value formula.


7. Soru

What is the formula for Present Value-Multiple Period Case?

Cevap

Where FV is the cash flow at the end of the first period and r is the interest rate. PV = FV / (1 + r)


8. Soru

What are Time value of Money problems made up of?

Cevap

Time value of Money problems in real life are seldom made up of single cash flows. Usually problems will involve numerous cash flows at different points in time. 


9. Soru

To deal with Time value of Money problems, what should be done?

Cevap

In order to deal with these types of problems we must learn how to deal with cases made up of a number of separate cash flows.


10. Soru

What are the examples of multiple cash flows?

Cevap

Someexamples of thesetype of cash flows include installment payments for the purchase of long-lived assets (refrigerators, cellular phones, TVs or even automobiles), mortgage payments for houses and bond payments.


11. Soru

What is an annuity?

Cevap

An annuity is a series of equal cash flows that occur for a given period at regular intervals.


12. Soru

What are the examples of annuities?

Cevap

Examples of annuities include loan repayments in installments of equal amounts, interest payments on bonds, mortgage payments, insurance payments, rent payments, etc.


13. Soru

What does ordinary annuity refer to?

Cevap

In addition to the ordinary annuities that we have seen, there are also annuities due. Ordinary annuity refers to annuities, which provide cash flows at the end of the period, whereas annuity due cash flows are at the beginning of the period. A common example of an ordinary annuity could be interest payments of bonds and for an annuity due could be insurance or rent payments.


14. Soru

What does perpetuity refer to?

Cevap

A perpetuity is an annuity with an infinite life. Perpetuities are also commonly referred to as “consols” due to the fact that they were used by the British Government to consolidate debts(DMO 2014) from the previous years issued to finance military campaigns


15. Soru

What is the formula for perpetuities?

Cevap

A perpetuity is an annuity with an infinite life. The formula is PV=C/r


16. Soru

What does periodic rate refer to?

Cevap

The periodic rate is the annual rate divided by the number of installments per year and the number of periods is calculated via multiplying the number of installments with the number of years.


17. Soru

What does Effective Annual Rate refer to?

Cevap

Effective Annual Rate (EAR) is the rate which is actually earned on an investment and is the rate that should be used to compare alternatives.


18. Soru

What does Annual Percentage Rate mean?

Cevap

Annual percentage rate (APR) is the stated rate of which banks, credit card companies, mortgage loan officers tell you they charge.


19. Soru

What does Pure Discount Loan refer to?

Cevap

Pure discount loans are the most basic type of loans. The borrower pays a lump sum at maturity which includes the interest and principal.


20. Soru

What does Amortizing Loan mean?

Cevap

Amortizing loans is another common type of loan where the initial amount borrowed and interest is repaid in equal periodic installments.


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