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Annuity and Cash Flow Quiz

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Questions and Answers

What is the definition of an annuity?

A one-time payment made at irregular intervals
A lump sum payment made at the end of a period
A sequence of payments made at equal intervals (correct)
A fixed amount of money to be paid over a period of time

What is the future value of an annuity?

The amount of money today plus incurred interest that is payable within a time period
The total value of all payments made at equal intervals
The sum of future values of all payments to be made during the entire term of the annuity (correct)
The value of a single payment at a particular date

How is the present value of an annuity defined?

The sum of future values of all payments to be made during the entire term of the annuity
The amount of money today plus incurred interest that is payable within a time period (correct)
The total value of all payments made at equal intervals
The value of a single payment at a particular date

How are cash inflows represented in financial calculations?

As positive numbers (A) Signup and view all the answers

What is the fair market value or economic value of a cash flow on a particular date?

A single amount equivalent to the value of the payment stream at that date (A) Signup and view all the answers

What rights do common stockholders have in a corporation?

Influence how the company is run and operated (C) Signup and view all the answers

What is the main characteristic of preferred stock?

It has a set dividend at the time of issuance (A) Signup and view all the answers

What does a stock certificate represent?

The ownership in a company (C) Signup and view all the answers

What is the par value of a stock?

The face value of the stock as stated in the company certificate (C) Signup and view all the answers

What is a bond in financial terms?

An interest-bearing security that represents a loan made by an investor to a borrower (B) Signup and view all the answers

What is the coupon in relation to bonds?

A periodic interest payment received by bondholders (C) Signup and view all the answers

What is the term or tenor of a bond?

The number of years from time of purchase to maturity date (C) Signup and view all the answers

What is meant by the term 'security' in financial context?

The economic value of debt and equity (B) Signup and view all the answers

What does the term 'frequency of conversion (m)' represent in financial calculations?

Number of conversion periods in one year (B) Signup and view all the answers

How would you define 'nominal rate' in financial terms?

'Annual rate of interest (may be compounded more than once a year)' (B) Signup and view all the answers