ch5

To find the present value of an annuity of $100 per year for 10 years at 10% per year using the tables, find a present value factor of 6.1446 and multiply it by ______.

$100

Which of the following is the formula for the future value of an annuity factor?

((1+r)t−1r)

Which of the following spreadsheet functions will result in the correct answer for the following annuity problem: You plan to deposit $100 per year for the next 10 years in an account paying 8%. How much will you have in this annuity?

=FV(.08,10,-100,0)

Interest rates can be quoted in various ways.

True

The annuity present value factor equals one___ the present value factor all divided by the discount rate.

minus

C/r is the formula for the present value of a(n) ____.

perpetuity

The ______present value can be found using the perpetual cash flow and the discount rate.

perpetuity

The formula for the ______ value interest factor of an annuity is: [1- 1/(1+r)τ]/r.

present

EAR = (1 +______rate/m)m - 1

quoted

The general formula for ______ is (1+quoted rate/m)m - 1.

the EAR

True or false: The annuity due calculation assumes cash flows occur evenly throughout the period.

False

True or false: The annuity present value factor equals one minus the discount rate all divided by the present value factor.

False

True or false: The effective annual rate is the interest rate expressed in terms of the interest payment made each period.

False

True or false: The interest rate charged per period divided by the number of periods per year.

False

True or false: Using the spreadsheet formula to convert a quoted rate (or an APR) to an effective rate, use the formula NOMINAL(effect_rate, npery).

False

True or false: The annuity present value of an amount C is calculated as C multiplied by {1-[1/(1+r)t]}r1-[1/(1+r)t]r.

True

True or false: The perpetuity present value can be found using the perpetual cash flow and the discount rate.

True

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