Question

1. In solving measurement problems involving the use of annuities, which of these four required conditions are not accurate? a. Periodic cash flows are equal in amount. b. Time periods between the cash flows are the same length. c. Interest rate is constant for each time period. d. Interest is compounded at the beginning of each time period. 2. An annuity in which the cash flows occur on the first day of each period is called an a. ordinary annuity. b. annuity due. c. annuity now. d. accrued annuity.

Answer 1

	Correct option	Explanation
1) In solving measurement problems involving the use of annuities, which of these four required conditions are not accurate? a. Periodic cash flows are equal in amount. b. Time periods between the cash flows are the same length. c. Interest rate is constant for each time period. d. Interest is compounded at the beginning of each time period.	d. Interest is compounded at the beginning of each time period.	Interest is compounded at the end of each time period.
2. An annuity in which the cash flows occur on the first day of each period is called an a. ordinary annuity. b. annuity due. c. annuity now. d. accrued annuity	b. annuity due.	An annuity due is a repeating payment that is made at the beginning of each period
3. The present value of an ordinary annuity is determined a. on the last day of the first annuity period. b. on the first day of the first annuity period. c. on the last day of the last annuity period. d. immediately before the first cash flow in the series occurs.	d. immediately before the first cash flow in the series occurs.	The present value of an ordinary annuity is determined on the first day before the first cash flow in the series occurs.
4. What is $425 to be received at the end of the year worth on January 1, assuming 6% interest compounded quarterly (rounded to nearest dollar)? a. $400 b. $370 C. $318 d. $100
Fv		$425
Rate = 6%/4		1.50%
Period =		4
Present value = PV(1.50,4,0,-425)	Option A $400 is correct	$400