#1
Which of the following best defines an annuity?
A series of equal periodic payments
ExplanationAn annuity is characterized by a series of equal periodic payments.
#2
In the context of annuities, what does 'PMT' stand for?
Payment
Explanation'PMT' stands for payment in the context of annuities.
#3
In the context of perpetuities, what does 'PMT' stand for?
Payment
Explanation'PMT' stands for payment in the context of perpetuities.
#4
What is the formula to calculate the future value of an annuity?
FV = PV * (1 + r)^n
ExplanationThe future value of an annuity is calculated using the formula FV = PV * (1 + r)^n.
#5
Which of the following is NOT a type of annuity?
Increasing annuity
ExplanationIncreasing annuity is not a recognized type of annuity.
#6
What does the term 'annuity due' refer to?
An annuity with payments at the beginning of each period
ExplanationAnnuity due refers to an annuity with payments at the beginning of each period.
#7
Which of the following formulas represents the present value of an annuity?
PV = PMT * (1 - (1 + r)^-n) / r
ExplanationThe present value of an annuity is given by PV = PMT * (1 - (1 + r)^-n) / r.
#8
Which of the following best describes an ordinary annuity?
An annuity with payments at the end of each period
ExplanationAn ordinary annuity involves payments at the end of each period.
#9
What distinguishes a perpetuity from an ordinary annuity?
Perpetuity has payments that continue indefinitely
ExplanationPerpetuity stands out as having payments that continue indefinitely.
#10
How is the present value of a perpetuity calculated?
PV = PMT / r
ExplanationThe present value of a perpetuity is calculated as PV = PMT / r.
#11
What is the relationship between the interest rate (r) and the present value of an annuity?
As r increases, PV decreases
ExplanationThere is an inverse relationship between the interest rate (r) and the present value (PV) of an annuity.
#12
Which of the following statements about perpetuities is true?
Perpetuities have payments that continue indefinitely
ExplanationPerpetuities are characterized by payments that continue indefinitely.
#13
What is the present value of a perpetuity that pays $100 every year, if the interest rate is 5%?
$1,000
ExplanationThe present value of the perpetuity is $1,000.