Chapter 5

Question 1

An annuity due will have less present value than will an ordinary annuity given that n, i, and p are the same in both cases.

Answer 1

F

Question 2

Assuming I > 0, the factor for the fv of a lump sum will always be higher than the factor for the pv of the same lump sum, regardless of the value of I or of n.

Answer 2

T

Question 3

An annuity due with a given I, p, and n has the same pv as p + an ordinary annuity of the same p and I but with periods = n-1.

Answer 3

T

Question 4

A savings account that pays an APR (nominal rate) = I with interest compounding quarterly has an effective annual rate > I.

Answer 4

T

Question 5

If a stream of cash flows is comprised of payments that are uneven in amount and in timing, the stream cannot be valued using the time value tools learned in class.

Answer 5

F

Question 6

“market interest rate” is always stated as:

Answer 6

APR

Question 7

EAR stand for

Answer 7

Effective Annual Rate

Question 8

Ordinary Annuity - you pay [now] or in the [future].

Answer 8

now

Question 9

Annuity Due - you pay [now] or in the [future].

Answer 9

future