Question

HW 04 - Time Value of Money Attempts Keep the Highest: 7 6. Future value of annuities Aa Aa There are two categories of cash flows: single cash flows, referred to as "lump sums," and annuities, Based on your understanding of annuities, ansiwer the foll owing questions. Which of the following statements about annuities are true? Check all that apply Ordinary annuities make fixed payments at the end of each period for a certain time period. A perpetuity is a constant, infinite stream of equal cash flows that can be thought of as an infinite annuity An annuity due is an annuity that makes a payment at the end of each period for a certain time period. An annuity due earms more interest than an ordinary annuity of equal time. 心. Which of the following is an example of an annuity? O O A retirement fund set up to pay a series of regular payments A fund that invests in technology companies and distributes quarterly dividends for two out of four quarters per year but not always the same quarters Luana loves shopping for clothes, but considering the state of the economy, she has decided to start saving. At the end of each year, she will deposit $710 in her local bank, which pays her 9% annual interest. Luana decides that she will continue to do this for the next seven years. Luana's savings are an example of an annuity. How much will she save by the end of seven years? O S5,552.46 O s6,532.31 o $7,120.22 $3,573.40 A-Z If Luana deposits the money at the beginning of every year and everything else remains the same, she will save by the end of seven years. LRrqwixour Boss Has

Answer 1

1)all are correct...

An ordinary annuity is which payment are made at the end of year,and if made at beginning it is annuity due,and made infinitely it is perpetuity and annuity due earns more interest than annuity arrears...

2)the term annuity refers to stream of regular periodic cash flows at regular intervals

So the answer is (a)

3)as she is making deposits at the end of each year for seven years here she gets interest for 6 years...

Therefore future value of annuity=cashflows*FVAF(7Y,9℅)

=$710*10.0285

=$7120.235

Answer is (C)