Question 1

What is the PV of an annuity due with 5 payments of $2,500 at an interest rate of 5.5%?

Accepted Answer

A)   $11,262.88
B)   $11,826.02
C)   $12,417.32
D)   $13,038.19
E)   $13,690.10F) None of the above
G) B) and D)

Question 2

Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?

Accepted Answer

A)   The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity.
B)   A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage.
C)   A bank loan's nominal interest rate will always be equal to or less than its effective annual rate.
D)   If an investment pays 10% interest, compounded annually, its effective annual rate will be less than 10%.
E)   Banks A and B offer the same nominal annual rate of interest, but A pays interest quarterly and B pays semiannually. Deposits in Bank B will provide the higher future value if you leave your funds on deposit.F) A) and E)
G) D) and E)

Question 3

Sue now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Accepted Answer

A)   $205.83
B)   $216.67
C)   $228.07
D)   $240.08
E)   $252.08F) A) and B)
G) B) and E)

Question 4

You have a chance to buy an annuity that pays $550 at the beginning of each year for 3 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?

Accepted Answer

A)   $1,412.84
B)   $1,487.20
C)   $1,565.48
D)   $1,643.75
E)   $1,725.94F) A) and B)
G) None of the above

Exam 5: Time Value of Money

What is the PV of an annuity due with 5 payments of $2,500 at an interest rate of 5.5%?

Correct Answer
verified

Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?

Correct Answer
verified

Sue now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Correct Answer
verified

You have a chance to buy an annuity that pays $550 at the beginning of each year for 3 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?

Correct Answer
verified

Exam 5: Time Value of Money

What is the PV of an annuity due with 5 payments of $2,500 at an interest rate of 5.5%?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?

Correct AnswerverifiedShow Answer

Sue now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

Correct AnswerverifiedShow Answer

You have a chance to buy an annuity that pays $550 at the beginning of each year for 3 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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