Time Value Of Money 2: Analyzing Annuity Cash Flows

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Question 1

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Multiple Choice

When saving for future expenditures, we can add the ________ of contributions over time to see what the total will be worth at some point in time.

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present value

future value

time value to money

payment

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Question 2

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Multiple Choice

Level sets of frequent, consistent cash flows are called

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loans.

budgets.

annuities.

bills.

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Question 3

Free

Multiple Choice

The length of time of the annuity is very important in accumulating wealth within an annuity. What other factor also has this effect?

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the time line

interest rate for compounding

the present value

the future value

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Question 4

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Multiple Choice

In order to discount multiple cash flows to the present, one would use

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the appropriate compound rate.

the appropriate discount rate.

the appropriate simple rate.

the appropriate tax rate.

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Question 5

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Multiple Choice

Your credit rating and current economic conditions will determine

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whether you get simple or compound interest.

how long compounding will affect you.

how long discounting will affect you.

the interest rate that a lender will offer.

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Question 6

Multiple Choice

When interest rates are lower, borrowers can

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get loans more easily.

cannot get loans as easily.

borrow more money.

afford higher payments.

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Question 7

Multiple Choice

The present value of annuity payments made far into the future is

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worth very little today.

worth much more today.

valued as having no time value of money.

valued as worthless as their value is not determinable.

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Question 8

Multiple Choice

A perpetuity, a special form of annuity, pays cash flows

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and is not effected by interest rate changes.

that do not have time value of money implications.

continuously for one year.

periodically forever.

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Question 9

Multiple Choice

Many people who want to start investing for their future want to start today, which implies an annuity stream that is paid at the beginning of the period. Beginning-of-period cash flows are referred to as

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ordinary annuities.

annuities due.

perpetuities.

present values.

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Question 10

Multiple Choice

To compute the present or future value of an annuity due, one computes the value of an ordinary annuity and then

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multiplies it by (1 + i).

divides it by (1 + i).

multiplies it by (1 − i).

divides it by (1 −i).

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Question 11

Multiple Choice

When computing the future value of an annuity, the higher the compound frequency

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the lower the future value will be.

the higher the future value will be.

the less likely the future value can be calculated.

the more likely the future value can be calculated.

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Question 12

Multiple Choice

Compounding monthly versus annually causes the interest rate to be effectively higher, and thus the future value

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grows.

decreases.

is independent of the monthly compounding.

is affected only if the calculation involves an annuity due.

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Question 13

Multiple Choice

The simple form of an annualized interest rate is called the annual percentage rate (APR). The effective annual rate (EAR) is a

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less accurate measure of the interest rate paid for monthly compounding.

more accurate measure of the interest rate paid for monthly compounding.

concept that is only used because the law requires it, and is of no use to a borrower.

measure that only applies to mortgages.

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Question 14

Multiple Choice

People refinance their home mortgages

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when rates fall.

when rates rise.

when rates fall and rise.

whenever they need to, independent of rates.

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Question 15

Multiple Choice

Loan amortization schedules show

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the principal balance paid per period only.

the interest paid per period only.

both the principal balance and interest paid per period.

the present value of the payments due.

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Question 16

Multiple Choice

When you get your credit card bill, it will offer a minimum payment, which

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usually only pays the accrued interest and a small amount of principal.

usually only pays the principal and a small amount of accrued interest.

usually only pays the principal and no accrued interest.

usually only pays the accrued interest and no principal.

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Question 17

Multiple Choice

When you get your credit card bill, if you make a payment larger than the minimum payment

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you are wasting your current consumption and making TVM not work for you.

you will reduce the payoff time.

you will increase the payoff time.

you will not affect the payoff time.

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Question 18

Multiple Choice

What is the future value of an $800 annuity payment over 15 years if the interest rates are 6 percent?

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$1,917.25

$7,002.99

$12,720.00

$18,620.78

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Question 19

Multiple Choice

What is the future value of a $1,000 annuity payment over 4 years if the interest rates are 8 percent?

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$3,312.10

$4,320.00

$4,506.11

$9,214.20

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Question 20

Multiple Choice

What is the present value of a $500 deposit in year 1, and another $100 deposit at the end of year 4 if interest rates are 5 percent?

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$480.00

$493.62

$558.46

$582.27

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