Question

A Asset Valuation = Price

B Wealth Accumulation

C Funding – Lump sum funds lump sum

D Funding – Lump sum funds ordinary level annuity

E Funding – Lump sum funds delayed level annuity

F Funding – Ordinary level annuity funds lump sum

G Funding – Ordinary level annuity funds delayed level annuity

H Classify the problem as one of the above types.

Classify the problem as one of the above types.

How much would you have to invest today to fund three equal payments in periods 1, 2 and 3 of $100 each if the interest rate is 3%?

Answer 1

correct answer-D Funding – Lump sum funds ordinary level annuity

Reason-it is an ordinary level annuity as there is a series of equal payments made at the end of consequtive years for a fixed tenure. Here one lumpsum amount (Which is the PV of the seried of payment) need to be invested today to fund 3 equal payment.

It is not a delayed annuity as, in a delayed annuity there is a reliable stream of cash payment until the death of the anuitant.

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