Question

When calculating the present value of an annuity, we assume that

a) the number of compundings depends on the annual interest rate

b. the number of compoundings per year is equal to the number of payments per year

c. the number of compoundings each year is independent of the payments per year

d. the number of compundings depends on the size of the payment.

the difference between the present value and future value of an amount is:

a. an annuity

b. income

c.interest

d. premium

A summary measure of an investment projected performance based on the possible rates of return and the likelihood of those rates of return occurring is called the

a. risk-free rate of return

b.expected rate of return

c. inflation-adjusted rate of return

d.relative rate of return

If you are borrowing money, which of the following would you prefer?

a. interest compounded annually

b.simple interest

c.interest compunded monthly

d.interest compunded quarterly

In the frequency of compunding increases

a. the future value increases and the present value increases

b.the future value increases and the present value decreases

c. the future value decreases and the present value increases

d. the future value decreases and the present value decreases

Answer 1

Question 1:

Option B.  the number of compoundings per year is equal to the number of payments per year

In an Annuity, no. of compundings & Payments will be only 1.

Question 2:

Option C. Interest

Interest is the reward for waiting. Difference between the money at present & money at future is Interest

Question 3:

Option B.expected rate of return

A summary measure of an investment projected performance based on the possible rates of return and the likelihood of those rates of return occurring is called the Expected rate of Return

Question 4:

Option B. SImple Interest

As we are borrowing money, the interest under simple interest will be less compared to compounding Interest

Question 5:

Option B.the future value increases and the present value decreases

Future Value will be more if the frequency of compounding is more