FINA 718 chapter 3 part 2
In the formula for the future value of an annuity, the expression in brackets is equal to the______.
In the formula for the future value of an annuity, the expression in brackets is equal to the future value interest factor of an annuity.
What is the present value of an annuity of $100 per year that begins at the end of year 4 and lasts for 5 years if the interest rate is 10 percent per year?
PV3 = $100[(1 − 1/1.105)/0.1] = $379.08. PV0= $379.08/1.103 = $284.81.
When using an annuity table to find the present value of an annuity, you multiply the annuity cash flow by the present value interest_________ for annuities.
factor
When using an annuity table to find the present value of an annuity, you multiply the annuity cash flow by the present value interest____________ for annuities.
factor
A delayed annuity (or perpetuity) is one that begins ______
many periods in the future
The formula for the Blank______ value interest factor of an annuity is {1-[1/(1+r)t]r}
present
What is the present value of $100 each year for 20 years at 10 percent per year?
$100{[1 − (1/(1.10)20)]/0.10} = $851.36.
What is the present value of an ordinary annuity that pays $100 per year for 3 years if the interest rate is 10 percent per year?
$100{[1 − (1/(1.10)3)]/0.10}
If the cash flows of an annuity start at the end of year 4, the present value of an annuity formula will discount all of the annuity cash flows back to the end of year______________.
3
A stream of cash flows that grow at a constant rate for a finite period is called a(n) ______.
A growing annuity is a stream of cash flows that grow at a constant rate for a finite period.
When finding the present value of an annuity using a spreadsheet (Excel), the interest rate should be entered as a whole number.
False
If the cash flows of an annuity start at the end of year 6 (date 6), the present value of an annuity formula will discount all of the annuity cash flows back to the end of year ______.
If the cash flows of an annuity start at the end of year 6 (date 6), the present value of an annuity formula will discount all of the annuity cash flows back to the end of year 5. The annuity value is as of the period before the payments begin.
To find the future value annuity factor from a time value of money table, read down the rows to find T = 10 and across the columns to find 10 percent. The factor where that column and row intersect is ______.
To find the future value annuity factor from a time value of money table, read down the rows to find T = 10 and across the columns to find 10 percent. The factor where that column and row intersect is 15.937.
To find the present value of an annuity of $100 per year for 10 years at 10 percent per year using the tables, look up the present value interest factor which is Blank______ and multiply that by Blank______.
To find the present value of an annuity of $100 per year for 10 years at 10 percent per year using the tables, look up the present value interest factor which is 6.1446 and multiply that by $100.
True or false: The first step in calculating the present value of a delayed annuity is to find the present value of the annuity one period prior to the first payment using the present value of an annuity formula.
True
True or false: The formula for the present value of an annuity factor is C{1-1(1 + r)tr}
True
True or false: The spreadsheet (Excel) formula for calculating the present value of $100 at the end of each year for 2 years at 10 percent per year is: PV(.1,2,-100,0).
True
An annuity due is a series of payments that are made ______.
at the beginning of each period
A_________ annuity begins in the future.
delayed
To find the future value annuity factor using the time value of money table, read down the rows to find T = 2, then across the columns for an interest rate of 10 percent. The intersection of that row and column will show the factor ______.
find the future value annuity factor using the time value of money table, read down the rows to find T = 2, then across the columns for an interest rate of 10 percent. The intersection of that row and column will show the factor 2.10.
C((1+r)t−1r)(1+r)t-1r is the formula for the_____________ value of an annuity. (Enter one word in the blank.)
future
C((1+r)t−1r)(1+r)t-1r is the formula for the____________________ value of an annuity.
future
If the interest rate is greater than zero, the value of an annuity due is always Blank______ an ordinary annuity.
greater than
A traditional (non-growing) annuity consists of a(n) ______ stream of cash flows for a fixed period of time.
level
When using the spreadsheet (Excel) function for finding the PV of an annuity, it's a good idea to enter the ______ as a negative value.
payment
Which of the following are real-world examples of annuities?
pensions mortgages
The first cash flow at the end of week 1 is $100, the second cash flow at the end of month 2 is $100, and the third cash flow at the end of year 3 is $100. This cash flow pattern is a(n) Blank______ type of cash flow.
uneven