Reference no: EM131711569
Rewrite these answers
a. The opportunity cost rate represents the rate of return on investment and the best option available of the same risk investment.
b. The annuity shows the various series of payment for the fixed amount for an certain number of periods. The lump sum payment represents the one single payment that occurred on future time period. Cash flow represents the inflow and outflow of the cash during a certain period. The uneven cash flowrepresents the series of the cash flows in which amount could fluctuate from time to time.
c. The payment occurred on the end of each period of time is represents by ordinary annuity. The payment occurred starts each period of time that is represented by annuity due.
d. If the n equals infinity then that is represent by the perpetuity. The other name of perpetuity is Consol.
e. The outflow is the amount paid and cash inflow is related to amount received. Time line is the graphical representation for showing the time of cash flows. The future value of an uneven cash flow represents by the terminal value.
f. For calculation of FV (Future Value) of single or series payment we used the Compounding. For calculation of PV (Present Value) of single or series payment we used the Discounting.
g. In annual compounding the interest is paid once in whole year. In semiannual interest is paid twice in year. In quarterly interest is paid four times in year. In monthly interest is paid 12 times in year. In daily interest is paid 365 times in year.
h. The EAR under the annual compounding will process the same FV at the end of year 1. The nominal rate is the rate of interest which stated in a contract the other name of the same is APR. The rate charge by the lender is called periodic rate.
j.The amortization is the table which shows the periodic payment of the installments which includes principal and interest. After each payment principal amount is less and Interest payment on the starting of principal balance. The loan which repay in equal installments is called amortized loan