# Essay on Fin221 Preflight

Words: 9387
Pages: 38

Chapter 5
Which of the following is the actual rate of interest paid or earned over a year's time?

Which of the following has the highest time value of money at the same time interest rate for the same number of payments
Correct Answer: the future value or an annuity-due

Which of the following would increase the present value of a single cash flow?
Wrong Answer: a decrease in the cash flow

You invest \$1000 at 6% compounded annually and want to know how much money you will have in 5 years. What does the \$1000 represent?

What is the appropriate interest rate and number of time periods to use to find the monthly payment for a 30-year mortgage at 6%
d. An account that pays 10% nominal interest with annual compounding.

e. An account that pays 10% nominal interest with daily compounding. RIGHT ANSWER | 2.(Points: 1) | | Suppose someone offered you the choice of two equally risky annuities, each paying \$10,000 per year for five years. One is an ordinary (or deferred) annuity, while the other is an annuity due. Which of the following statements is CORRECT?

a. If interest rates increase, the difference between the present value of the ordinary annuity and the present value of the annuity due remains the same.

b. The present value of the ordinary annuity must exceed the present value of the annuity due, but the future value of an ordinary annuity may be less than the future value of the annuity due.

c. The present value of the annuity due exceeds the present value of the ordinary annuity, while the future value of the annuity due is less than the future value of the ordinary annuity. WRONG ANSWER

d. The present value of the ordinary annuity exceeds the present value of the annuity due, and the future value of an ordinary annuity also exceeds the future value of the annuity due.

e. The present value of the annuity due exceeds the present value of the ordinary annuity, and the future value of the annuity due also exceeds the future value of the ordinary annuity. | 3.(Points: 1) | | Which of the following is NOT CORRECT?

a. If there is annual