Question

1) Money or funds can be thought of as a commodity, like any other commodity that can be bought or sold. T or F

2) The sum of the present value discount factors for 1...n years equals the present value factor for an annuity at year n.

Answer 1

1) True

Money can be thought as commodity. for example one can hedge his foreign currency exposure using forward contract. One can buy dollar and keep it and sell dollar at high price.

2) True

Prsent value factor for annuity is nothing but sum of present value of discount factor. For example Lets say r = 10%, n = 5 years

PVIFA = (1-(1/(1+r)^n/r)

=(1-(1/1.1)^5 / 0.1)

=(1-0.620921/0.1)

=3.7908

Now statement showing total of PVIF

Year	PVIF @ 10%
1	0.9091
2	0.8264
3	0.7513
4	0.6830
5	0.6209
	3.7908