Fm Exam

1. What is the formula for calculating Simple Interest?

Simple Interest = Principal / Rate x Time

Simple Interest = Principal + Rate + Time

Simple Interest = Principal x Rate

Simple Interest is calculated by multiplying the Principal amount by the Rate of interest and the Time period in years.

Explanation

Simple Interest is calculated by multiplying the Principal amount by the Rate of interest and the Time period in years.

2. What is Compound Interest?

Simple interest calculated on a principal amount only.

Interest that decreases over time as the loan is repaid.

Interest paid only once, usually at the end of a specified term.

Compound interest is different from simple interest in that it includes not only the initial principal investment but also the interest that accumulates on that principal sum. This results in interest being calculated on both the initial principal and the accumulated interest from previous periods.

Explanation

Compound interest is different from simple interest in that it includes not only the initial principal investment but also the interest that accumulates on that principal sum. This results in interest being calculated on both the initial principal and the accumulated interest from previous periods.

3. What does the term 'Accumulation Function' refer to?

The process of adding two or more numbers together.

The maximum amount of money that can be invested in a fund.

The accumulated value of the fund at time t of an initial investment.

The rate at which money grows over time.

The Accumulation Function refers to the total value of the investment at a specific point in time, not just the rate of growth or the process of addition. It is not limited to a maximum amount either.

Explanation

The Accumulation Function refers to the total value of the investment at a specific point in time, not just the rate of growth or the process of addition. It is not limited to a maximum amount either.

4. What is the formula to find the sum of a Geometric Progression?

The formula to find the sum of a Geometric Progression is: S = n(a + l)/2, where a is the first term, l is the last term, n is the number of terms, and S is the sum.

The formula to find the sum of a Geometric Progression is: S = (n * (2a + (n - 1)d)) / 2, where a is the first term, d is the common difference, n is the number of terms, and S is the sum.

The formula to find the sum of a Geometric Progression is: S = a * r^n, where a is the first term, r is the common ratio, n is the number of terms, and S is the sum.

The correct formula to find the sum of a Geometric Progression is the first one provided. It takes into account the first term, common ratio, and number of terms to calculate the sum accurately.

Explanation

The correct formula to find the sum of a Geometric Progression is the first one provided. It takes into account the first term, common ratio, and number of terms to calculate the sum accurately.

5. What does the Effective Rate of Interest measure?

The rate at which a fund is depleting over time.

The interest rate paid monthly on a loan.

The total interest earned over the course of a year.

Regular i. Tells us how fast a fund is growing based on the amount in the fund at the beginning of the year.

The Effective Rate of Interest provides information on how fast a fund is growing based on its initial amount; it is not related to the total interest earned, monthly loan interest rates, or fund depletion rates.

Explanation

The Effective Rate of Interest provides information on how fast a fund is growing based on its initial amount; it is not related to the total interest earned, monthly loan interest rates, or fund depletion rates.

6. What is the Effective Rate of Discount?

Regular d. Tells us how fast a fund is growing based on the amount in the fund at the end of the year.

C. The rate at which a product is being discounted for sale.

A. The rate at which interest is charged on a loan.

B. The rate at which a fund is decreasing in value.

The Effective Rate of Discount actually refers to how fast a fund is growing based on its value at the end of the year, not to be confused with interest rates on loans, decreases in fund value, or discount rates on products.

Explanation

The Effective Rate of Discount actually refers to how fast a fund is growing based on its value at the end of the year, not to be confused with interest rates on loans, decreases in fund value, or discount rates on products.

7. What is Present Value?

Amount at time 0. How much should we invest today in order to have a given amount at the end of t years?

Initial Investment. The total amount of money that was originally invested.

Net Worth. The total assets minus liabilities of an individual or company, also known as equity.

Amount at the end of t years.

Future Value. The amount that an investment is worth after a specified period at a given interest rate.

Present Value refers to the amount of money required today to achieve a specific monetary goal at some point in the future. It involves discounting future cash flows back to the present using an appropriate interest rate.

Explanation

Present Value refers to the amount of money required today to achieve a specific monetary goal at some point in the future. It involves discounting future cash flows back to the present using an appropriate interest rate.