18 Questions
In finance, what is a lump-sum amount?
A single payment paid or received in the current period or some future period
What is an annuity in finance?
A series of equal payments that occur at equal time intervals
What is the Time Value of Money concept primarily concerned with?
The idea that a dollar today is worth more than a dollar in the future
How would you describe an uneven cash flow stream in finance?
Multiple payments that are not equal and do not occur at equal intervals
What does 'Future Value' refer to in finance?
The value to which a cash flow or series of cash flows will grow over time
How are cash flow time lines used in finance?
To represent timing of cash flows graphically
Which of the following statements best describes the time value of money?
It is the principle that a dollar today is worth more than a dollar in the future due to its potential earning capacity
What is a cash flow pattern?
The sequence of cash inflows and outflows over time
Which of the following is used to calculate the future value of an investment?
Future value formula
What is an annuity?
A series of equal periodic payments made at the end of each period
Which of the following is NOT a typical cash flow pattern observed in business?
A geometric series
What is the difference between the Annual Percentage Rate (APR) and the Effective Annual Rate (EAR)?
APR is the stated interest rate, while EAR is the actual interest rate earned or paid after compounding
What is the term used to designate constant cash flows (an annuity stream)?
Payment (PMT)
What does the term "Cash Flow (CF)" designate?
Both constant cash flows and uneven cash flows
What is the present value of the uneven cash flow stream given in the example ($400, $300, $250 at 5% interest)?
$869.02
Which of the following formulas is used to calculate the present value of an uneven cash flow stream?
$PV = \sum_{t=1}^n \frac{CF_t}{(1+r)^t}$
In the numerical example, what is the present value of the $400 cash flow occurring at time 0?
$400
Which of the following cash flow patterns represents an annuity?
$500, $500, $500, $500
Test your knowledge on different patterns of cash flows in finance, including lump-sum amounts, annuities, and uneven cash flow streams. This quiz is based on principles discussed in the book 'Principles of Finance 5e' regarding the time value of money.
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