#1
What is the formula to calculate the future value of an annuity?
FV = PV * (1 + r)^n
ExplanationCompound interest on principal over a number of periods.
#2
Which of the following is a characteristic of an ordinary annuity?
Payments are made at the end of each period
ExplanationPayments occur at the end of the period.
#3
Which of the following is true regarding the time value of money?
A dollar received today is worth more than a dollar received in the future
ExplanationMoney has greater worth now than in the future.
#4
In financial management, what does the term 'discount rate' typically refer to?
The rate at which future cash flows are discounted to their present value
ExplanationThe interest rate used to discount future cash flows.
#5
Which of the following is NOT a factor affecting the present value of an annuity?
Type of annuity (ordinary or annuity due)
ExplanationNature of annuity payments does not impact its present value.
#6
What is the present value of an annuity if the payment is $1000 per year, the interest rate is 8%, and it lasts for 5 years?
$4,486.25
ExplanationThe current worth of future cash flows discounted at the given interest rate.
#7
What is the future value of an annuity due with an annual payment of $2000, an interest rate of 6%, and it lasts for 10 years?
$24,714.52
ExplanationThe total value of payments compounded at the interest rate over the given period.
#8
Which formula is used to calculate the present value of an annuity?
PV = PMT * (1 - (1 / (1 + r)^n)) / r
ExplanationThe value of all cash flows at the current time.
#9
An annuity pays $500 per month for 5 years, with an interest rate of 6% per annum. What is the future value of this annuity?
$39,560.85
ExplanationThe total worth of payments at the end of the period.
#10
What is the future value of an ordinary annuity with annual payments of $2000, an interest rate of 5%, and it lasts for 8 years?
$19,147.56
ExplanationThe total value of payments compounded at the interest rate over the given period.
#11
Which of the following statements about perpetuities is true?
Perpetuities continue indefinitely
ExplanationPayments occur indefinitely.
#12
What is the present value of an annuity due with payments of $1500 per year, an interest rate of 10%, and it lasts indefinitely?
$16,500
ExplanationThe current worth of infinite payments at the given interest rate.
#13
Which of the following formulas is used to calculate the number of periods required to reach a desired future value in an annuity?
n = ln(FV/PV) / ln(1 + r)
ExplanationThe time it takes for the value to reach a certain point.
#14
An individual wants to have $100,000 in 10 years by saving into an annuity with an interest rate of 8%. How much should this individual save annually?
$8,893.73
ExplanationThe yearly deposit amount needed to accumulate a target sum.
#15
An investment offers to pay $1,000 every year indefinitely, with the first payment starting one year from now. If the discount rate is 8%, what is the present value of this perpetuity?
$10,000
ExplanationCurrent worth of infinite payments at the given interest rate.