Ch9&10

Question 1

Issac invests $5,000 in a money market account at his local bank. He receives annual interest of 8% compounded for four years. How much total return will his investment earn during this time period?

Answer 1

$1,800
=5000 x 1.360 = $6,800
6,800-5000 =1,800

Question 2

The ____ is the current value of future payments from an annuity, given a specified rate of return, or discount rate

Answer 2

Present value of an annuity

Question 3

___ refers to an annuity whose payment is due immediately at the beginning of each period

Answer 3

Annuity due

Question 4

If you invest $10,000 today at 10% interest, how much will you have in 10 years?

Answer 4

$25,940
= 10,000 x 2.594 = 25,940

Question 5

As the compounding rate becomes lower and lower, the future value of inflows approaches ___

Answer 5

The present value of the inflows

Question 6

An annuity is a series of consecutive payments or receipts of an equal amount

Answer 6

True or false

Question 7

An ordinary annuity payments assumed at end of each period

Answer 7

True or false

Question 8

A sum payable in the future is worth less today than the stated amount

Answer 8

True or false

Question 9

Annuity due payments are at the beginning of each period

Answer 9

TRUE or false

Question 10

$100 in a savings account paying 8% interest compounded annually will be worth $162.99 in 3 years

Answer 10

True or FALSE