Questions

(4-1)

Define each of the following terms:

PV; I; INT; FVN; PVAN; FVAN; PMT; M; INOM

Opportunity cost rate

Annuity; lump-sum payment; cash flow; uneven cash flow stream

Ordinary (or deferred) annuity; annuity due

Perpetuity; consol

Outflow; inflow; time line; terminal value

Compounding; discounting

Annual, semiannual, quarterly, monthly, and daily compounding

Effective annual rate (EAR or EFF%); nominal (quoted) interest rate; APR; periodic rate

Amortization schedule; principal versus interest component of a payment; amortized loan

(4-2)

What is an opportunity cost rate? How is this rate used in discounted cash flow analysis, and where is it shown on a time line? Is the opportunity rate a single number that is used to evaluate all potential investments?

(4-3)

An annuity is defined as a series of payments of a fixed amount for a specific number of periods. Thus, $100 a year for 10 years is an annuity, but $100 in Year 1, $200 in Year 2, and $400 in Years 3 through 10 does not constitute an annuity. However, the entire series does contain an annuity. Is this statement true or false?

(4-4)

If a firm’s earnings per share grew from $1 to $2 over a 10-year period, the total growth would be 100%, but the annual growth rate would be less than 10%. True or false? Explain.

(4-5)

Would you rather have a savings account that pays 5% interest compounded semiannually or one that pays 5% interest compounded daily? Explain.

Detail:

Write between 750 – 1,250 words (approximately 3 – 5 pages) using Microsoft Word in APA style.

Use font size 12 and 1” margins.

Include cover page and reference page.

At least 80% of your paper must be original content/writing.

No more than 20% of your content/information may come from references.

Use at least three references from outside the course material; one reference must be from __EBSCOhost__. Text book, lectures, and other materials in the course may be used, but are not counted toward the three reference requirement.

Cite all reference material (data, dates, graphs, quotes, paraphrased words, values, etc.) in the paper and list on a reference page in APA style.

References must come from sources such as scholarly journals found in __EBSCOhost__ or on __Google Scholar__, government websites and publications, reputable news media (e.g. __CNN__ , __The Wall Street Journal__, __The New York Times__) websites and publications, etc. Sources such as Wikis, Yahoo Answers, eHow, blogs, etc. are not acceptable for academic writing.