Question

23. An ordinary annuity is best defined as: A) increasing payments paid for a definitive period of time. B) increasing payments paid forever C) equal payments paid at the end of regular intervals over a stated time period. D) equal payments paid at the beginning of regular intervals for a limited time period. E) equal payments that occur at set intervals for an unlimited period of time 24. A perpetuity is defined as: A) a limited number of equal payments paid in even time increments. B) payments of equal amounts that are paid irregularly but indefinitely C) varying amounts that are paid at even intervals forever. D) unending equal payments paid at equal time intervals E) unending equal payments paid at either equal or unequal time intervals. 2S. Your credit card charges you .85 percent interest per month. This rate when multiplied by 12 is called the A) effective annual B) annual percentage C) periodic interest D) compound interest E) episodic interest 26. Which one of these statements related to growing annuities and perpetuities is correct? A) You can compute the present value of a growing annuity but not a growing perpetuity. B) In computing the present value of a growing annuity, you discount the cash flows using the growth rate as the discount rate C) The future value of an annuity will decrease if the growth rate is increased. D) An increase in the rate of growth will decrease the present value of an annuity E) The present value of a growing perpetuity will decrease if the discount rate is increased. 27. The actual interest rate on a loan that is compounded monthly but expressed as an annual rate is referred to as the A) stated B) discounted annual C) effective annual D) periodic monthly E) consolidated monthly rate 28. Which one of the following statements related to loan interest rates is correet? A) The annual percentage rate considers the compounding of interest. B) When comparing loans you should compare the effective annual rates. C) Lenders are most apt to quote the effective annual rate. D) Regardless of the compounding period, the effective annual rate will always be higher than the annual percentage rate. E) The more frequent the compounding period, the lower the effective annual rate given a fixed annual percentage rate

Answer 1

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23	An ordinary annuity is a series of equal payments made at the end of consecutive periods over a fixed length of time.
	Answer is Option C.
24	A perpetuity is an annuity that has no end, or a stream of cash payments that continues forever.
	Answer is Option D.
25	An annual percentage rate (APR) is the annual rate charged for borrowing or earned through an investment.
	Answer is Option B.
26	The present value of an annuity is the current value of future payments from an annuity, given a specified rate of return or discount rate. The annuity's future cash flows are discounted at the discount rate. Thus, the higher the discount rate, the lower the present value of the annuity
	Answer is Option E.
27	The effective annual interest rate is the interest rate that is actually earned or paid on an investment, loan or other financial product due to the result of compounding over a given time period. It is also called the effective interest rate, the effective rate or the annual equivalent rate.
	Answer is Option C.
28	The effective annual interest rate is the interest rate that is actually earned or paid on an investment, loan or other financial product due to the result of compounding over a given time period. It is also called the effective interest rate, the effective rate or the annual equivalent rate. So you should compare Effective Annual Rate when comparing loans.
	Answer is Option B.