multiplying the __________ by the
number of compounding periods
per year.
a) Principle sum
b) Interest rate per compounding
period
c) Effective interest rate
d) None of the above

Mathematical equivalence is a
consequence of the mathematical
relationship between _______.
D

What is the annual effective

interest rate equivalent for a
nominal rate of 6.000%,
compounded semi-annually?
(three decimal places accuracy)
The timing of cash flows is always

simple and regular. (T/F)
An assumption required by the
True

principle of discrete compounding

is that the compounding periods
are of equal length. (T/F)

Models of cash flows which
assume that all cash flows and all
compounding of cash flows occur
at the ends of conventionally
defined periods are called __________.
B

To find the annuity value, A,
equivalent to a present amount, P,
with a given interest rate, i, and the
number of periods over which this
annuity will be paid, N, one would
use the __________ factor.
A

17 years ago you put $38,000 in an
investment account earning 14%. In
$314,469.55

year 6 you took out a sum of
$9,000 from the account. How
much money do you have now?
An investment may be thought of

as an exchange of resources now
for an expected flow of benefits in
the future. (T/F)
The payback period is the number
True

of years it takes for an investment
to be recouped when the interest
rate is assumed to be zero. (T/F)
The cost of capital for large
companies is an average of the
costs of borrowing and of selling
shares, which is referred to as the
___ average cost of capital.

The ______ can also be used for the

annual worth method if the
assumption of being able to
indefinitely repeat the choice of
alternatives is not justified.

Chloe invests $65,000 today. At the

end of year 4 she will start to
withdraw a consistent amount
annually until the end of year 24. If
the interest rate is 14%, how much
money can be withdrawn each
year?
Adam withdraws uniformly from a

savings account, at a rate of $7,000
for 10 years. Then due to
unforeseen circumstances he
needs to increase his annual
withdrawal by an additional $1300.
He continues to withdraw money
at this increased rate for another 5
years until the account is
exhausted. With an interest rate of
8%, what was the initial value of the
savings account?