Quiz 2 by JT Flashcards
The future value interest factor is
(a) always greater than 1.0.
(b) sometimes negative.
(c) always less than 0.
(d) never greater than 25.
(a) always greater than 1.0.
When the amount earned on a deposit has become part of the principal at the end of a specified time period the concept is called
(a) discount interest.
(b) compound interest.
(c) primary interest.
(d) future value.
(b) compound interest.
As the interest rate increases for any given period, the future value interest factor will
(a) decrease
(b Increase
(c) remain unchanged
(d) move toward 1
(b Increase
The amount of money that would have to be invested today at a given interest rate over a specified period in order to equal a future amount is called
(a) future value.
(b) present value.
(c) future value interest factor.
(d) present value interest factor.
(b) present value.
Which of the following is true about annuities.
(a) An ordinary annuity is an equal payment paid or received at the beginning of each period.
(b) An annuity due is a payment paid or received at the beginning of each period that increases by an equal amount each period.
(c) An annuity due is an equal payment paid or received at the beginning of each period.
(d) An ordinary annuity is an equal payment paid or received at the end of each period that increases by an equal amount each period.
(c) An annuity due is an equal payment paid or received at the beginning of each period.
An annuity with an infinite life is called a(n)
(a) perpetuity.
(b) primia
(c) indefinite
(d) deep discount
(a) perpetuity.
In comparing an ordinary annuity and an annuity due, which of the following is true?
(a) The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity.
(b) The future value of an ordinary annuity is always greater than the future value of an otherwise identical annuity due.
(c) The future value of an annuity due is always less than the future value of an otherwise identical ordinary annuity, since one less payment is received with an annuity due.
(d) All things being equal, one would prefer to receive an ordinary annuity compared to an annuity due.
(a) The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity.
Which would provide the facility with P250,000 per year into perpetuity. The rate of interest is expected to be 8 percent for all future time periods. How large must the endowment be?
(a) P2,314,814
(b) P2,000,000
(c) P3,125,000
(d) P3,000,000
(c) P3,125,000
James plans to fund his individual retirement account, beginning today, with 20 annual deposits of P2,000, which he will continue for the next 20 years. If he can earn an annual compound rate of percent on his deposits, the amount in the account upon retirement will be
(a) P19,636.
(b) P91,524.
(c) P98,846.
(d) P21,207.
(c) P98,846.
Mary will receive P12,000 per year for the next 10 years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent?
(a) P120,000
(b) P 67,800
(c) P 38,640
(d) None of the above.
(b) P 67,800
To pay for her college education, Gina is saving P2,000 at the beginning of each year for the next eight years in a bank account paying 12 percent interest. How much will Gina have in that account at the end of 8th year?
(a) P16,000
(b) P17,920
(c) P24,600
(d) P27,552
(d) P27,552
P100 is received at the beginning of year 1, P200 is received at the beginning of year 2, and P300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is
(a) P1,536
(b) P 672
(c) P727
(d) P1,245
(c) P727
The future value of P200 received today and deposited at 8 percent compounded semi annually for three years is
(a) P380
(b) P158
(c) P253
(d) P252
(c) P253
Gina has planned to start her college education four years from now. To pay for her college education, she has decided to save P1,000 a quarter for the next four years in a bank account paying 12 percent interest. How much will she have at the end of the fourth year?
(a) 1,574
(b) 19,116
(c) 20, 157
(d) 16,000
(c) 20, 157
Janice would like to send her parents on a cruise for their 25th wedding anniversary. She has priced the cruise at P15,000 and she has 5 years to accumulate this money. How much must Janice deposit annually in an account paying 10 percent interest in order to have enough money to send her parents on the cruise?
(a).P1,862
(b) P2,457
(c) P3,000
(d) P2,234
(b) P2,457
