M1-Chapter 1 - time value of money

In which type of loan is the interest calculated only on the initial loan amount throughout the loan term?

• b) Simple Interest Loan

• c) Pure Discount Loan

• a) Fixed Principal Loan

• d) Fixed Annuity Loan

Which loan type involves equal, periodic payments that include both principal and interest?

• Fixed Principal Loan

• Simple Interest Loan

• Pure Discount Loan

• Fixed Annuity Loan

In which loan type does the borrower make Periodic payments including a fixed principal amount and declining interest amount over time?

• Fixed Principal Loan

• Simple Interest Loan

• Pure Discount Loan

• Fixed Annuity Loan

How does an increase in the discount rate affect the present value of future cash flows?

• Increases the present value

• Decreases the present value

• Has no effect on the present value

• Depends on the compounding frequency

How does a longer investment horizon typically affect the impact of compounding?

• Increases the compounding effect

• Decreases the compounding effect

• Has no effect on the compounding

• Makes compounding unpredictable

How do we determine the accumulated interest rate?

• It is the difference between the present and future value.

• By multiplying the principal by the number of periods

• By subtracting the principal from the final amount

• By calculating the future value and dividing it by the present value

in (a)   , interest is calculated not only on the principal but also on previous earned interest

A Fixed (a)   loan provides a series of equal cash flows at regular intervals, typically for a set number of years.