Fin. Chap 5
Which of the following is the formula for the future value of an annuity factor?
((1+r)t−1/r)
EAR =
(1 + quoted rate/m)m
The formula for the present value of an annuity due is:
(1+r)×(PV of an ordinary annuity)
\Which of the following is the general formula for the EAR when m is the number of times interest is compounded in a year?
1+quoted rate/m)m - 1
Which of the following is a perpetuity?
A constant stream of cash flows forever
An annuity with payments beginning immediately rather than at the end of the period is called an _________.
Annuity due
Which of the following processes can be used to calculate the future value of multiple cash flows?
Calculate the future value of each cash flow first and then sum them Compound the accumulated balance forward one year at a time
The effective annual rate (EAR) takes into account the ______ of interest that occurs within a year.
Compounding
One step in calculating an EAR is to ____ the quoted rate by the number of times that the interest is compounded.
Divide
When calculating annuity present values using a financial calculator, the ___ amoujnt is left blank
FV
True or false: The annuity present value factor equals one minus the discount rate all divided by the present value factor.
False
A perpetuity is a constant stream of cash flows for a(n) ______ period of time.
Infinite
An ordinary annuity consists of a(n) ________ stream of cash flows for a fixed period of time.
Level
The present value of an annuity due is equal to the present value of a(an) ______ annuity multiplied by (1+ r).
Ordinary
The formula for the ______ value interest factor of an annuity is: [1- 1/(1+r)τ]/r.
Present
True or false: An ordinary annuity consists of a level stream of cash flows for a fixed period of time.
True
True or false: The annuity present value of an amount C is calculated as C multiplied by {1-[1/(1+r)t]}/r
True
True or false: To find the future value of multiple cash flows, calculate the future value of each cash flow first and then sum them.
True
True or false: When calculating the present value of an annuity using the financial calculator, you enter the cash flows of the annuity in the PMT key.
True
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) ______ type of cash flow.
Uneven
An annuity due is a series of payments that are made ____.
at the beginning of each period
When finding the present or future value of an annuity using a financial calculator, the ______ ______ should be entered as a percentage.
interest rate
Because of __________ and _________, interest rates are often quoted in many different ways.
tradition; legislation
The annuity present value factor equals one ____ the present value factor all divided by the discount rate.
Minus
You are solving a present value equation using a financial calculator and are given the number of years for compounding. This should be entered as the _____ value on the financial calculator.
N
Assume interest is compounded monthly. The ______ annual rate will express this rate as though it were compounded annually.
Effective
Spreadsheet functions used to calculate the present value of multiple cash flows assume, by default, that all cash flows occur at the _______ of the period.
End
