Chapter 6 Smart book
What is formula to calculate the present value of an annuity that makes payments of $100 per year for 10 years if the first payment is made immediately and the discount rate is 10 percent per year?
$100[(1 − 1/1.1010)/0.10][1.10]
The formula for the present value of an annuity due is _____.
(1 + r) × (PV of an ordinary annuity)
which of the following processes can be used to calculate future value for multiple cash flows?
-compound the accumulated balance forward one year at a time -calculate the future value of each cash flow first and then ass them up
You are planning to buy a CD for $1,352. You will receive $1,500 in 2 years. Which inputs will you use in a financial calculator to find the interest rate you will receive on that investment, assuming annual compounding?
Enter −1,352 for PV, 2 for N, and 1,500 for FV. Solve for I/Y.
When using a financial calculator to determine the number of payments on a loan, you may use the inputs I/Y, PMT, and PV to solve for _____.
N
You may use which of the following sets of inputs together to solve for the present value of an annuity using a financial calculator?
N, I/Y, PMT, PV
When using a financial calculator to find the interest rate, you may use the inputs N, PMT, and PV to find 1/_______
Y
Which of the following is a perpetuity?
a constant stream of cash flows
the present value of a series of______ cash flows is the amount you would need today to exactly duplicate those future cash flows
future
which of the following are real-world examples of annuities?
mortgages, pensions
A typical investment has a large cash __________ at the beginning and then a cash_________ for many years.
outflow; inflow
the APR is also called the _____ rate and it differs from the EAR
stated
rue or false: The formula for the present value interest factor for annuities is Annuity present value factor = {1-[1/(1+r)t]}r1-[1/(1+r)t]r.
true
one method of calculating future values for multiple cash flows to compound the accumulated balance forward_______ at a time.
one year
The formula for the ______ value interest factor of an annuity is {1-[1/(1+r)t]r}1-[1/(1+r)t]r.
present
You will receive a bonus of $5,000 in one year's time, and would like to take a loan against it now. What is the formula that shows how much you can borrow if you plan to use the entire amount to pay back the loan and your interest rate is 3%?
$5,000/1.03
Which of the following is equal to an effective annual rate of 12.36 percent?
12%, compounded semiannually For monthly compounding, the EAR = (1+0.12/12)12 - 1= 12.68%. For 12% compounded semiannually, EAR = (1 +0.12/2)2 -1 = 12.36%
True or false: The APR is always the same as the EAR.
False
how frequently does continuous compounding occur?
every instant
The present value of a series of future cash flows is the amount you would need today to_________.
exactly duplicate those future cash flows
most investments involve______ cash flows
multiple
What is the present value of an ordinary annuity that pays $100 per year for 20 years if the interest rate is 10 percent per year?
$100{[1 - (1/(1.10)20)]/0.10}
Which formula shows the present value of an ordinary annuity that pays $100 per year for three years if the interest rate is 10 percent per year?
$100{[1 − (1/(1.10)3)]/0.10}
Which of the following show the steps you would apply using a financial calculator to find the future value of an annuity of $100 per year for 10 years at 15%?
Enter 100 for PMT, 10 for N, and 15 for I/Y. Solve for FV.
You owe $1,200 on your credit card, which charges 1.5% per month. If you pay $50 per month starting at the end of this month, which of the following show the steps you will apply using a financial calculator to solve for the number of months will it take to pay off your credit card?
Enter −50 for PMT, 1,200 for PV, and 1.5 for I/Y. Solve for N.
In the standard present and future value tables, and in all the default settings on a financial calculator, the assumption is that cash flows occur at the_________ of each period.
end
s single cash flow is known as a:
lump sum
An annuity due is a series of payments that are made ____.
at the beginning of each period
