Chapter 6 FIN 3000

How would an increase in the interest rate effect the present value of an annuity problem (all other variables remain the same)? Change the future value. Increase the present value. Increase the time needed to save. Decrease the present value.

Decrease the present value. An increase in the interest rate would mean that the money invested is earning more and thus, require less to be saved in the present.

The variable that you are solving for in a future value of a lump sum problem is: Time period Interest rate Future value Present value Payments

Future Value

The variables in a present value of an annuity problem include all of the following, except: Payments Time period Source of funds Interest rate

Source of funds

The variable that you are solving for in a present value of an annuity problem is: Interest rate The Present value Time period Payments

The Present value

A common error made when solving a future value of an annuity problem is: Multiplying the number of years and the interest rate before calculating the problem. Using factor tables to help solve the problem. Multiplying the annual deposit and the number of years before calculating the problem. Dividing the annual deposit by the number of years before calculating the problem. Using a financial calculator to help solve the problem.

Multiplying the annual deposit and the number of years before calculating the problem. The most common error that is made is multiplying the annual deposit by the number of years before using the factor table.

The variables in a present value of an annuity problem include all of the following, except: Payments Time period Risk Profile Interest rate

Risk Profile