A lump sum amount of money that must be deposited now to provide a specified series of equal payments (annuity) in the future is known as the future value of an annuity. O True O False
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- The process that determines the present value of a single payment or stream of payments to be received is ________. A. compounding B. discounting C. annuity D. lump-sumUsing an annuity, you may calculate the present value of a single payment or a series of payments you will receive. Is this statement correct or incorrect?The present value of a perpetuity is equal to the payment on the annuity, PMT, divided bythe interest rate, I : PV = PMT/I. What is the future value of a perpetuity of PMT dollars peryear? (Hint: The answer is infinity, but explain why.)
- An annuity is a method for calculating the future value of a single payment or a series of payments. What do you think?Select all the statements on perpetuities that are correct. a. The present value of a perpetuity increases if the interest rate increases. b. If I multiply the present value of a perpetuity with the interest rate then I get the value of a single payment of the cashflow stream. c. The present value value of a perpetuity is independent of the interest rate. d. The present value of a perpetuity is infinite as all the payments add up to infinity. e. A perpetuity describes a constant cashflow at the end of each year that continues infinitely long.Perpetuities are also called annuities with an extended or unlimited life. Based on your understanding of perpetuities, answer the following questions. Which of the following are characteristics of a perpetuity? Check all that apply. The present value of a perpetuity is calculated by dividing the amount of the payment by the investor’s opportunity interest rate. In a perpetuity, returns—in the form of a series of identical cash flows—are earned. A perpetuity continues for a fixed time period. The principal amount of a perpetuity is repaid as a lump-sum amount. Your grandfather wants to establish a scholarship in his father’s name at a local university and has stipulated that you will administer it. As you’ve committed to fund a $5,000 scholarship every year beginning one year from tomorrow, you’ll want to set aside the money for the scholarship immediately. At tomorrow’s meeting with your grandfather and the bank’s representative, you will need to…
- Increasing the number of periods will increase all of the following except: Select one: A. The present value of an annuity B. The present value of $1 C. The future value of $1 D. The future value of an annuityShow that the present value of annuaity due is one period accumulated value of the present value of annuity immediate.Perpetuity is a type of annuity which has infinite period of payments. The present value of a perpetuity equals to the annual payment divided by the required rate of return. True or False
- 1. Which statement is FALSE? A. Future value annuity is an example of annuity. B. A perpetuity is an annuity that has maturity period. C. An annuity is a series of equal payment made for a specified number of years. D. Ordinary annuity is an annuity in which the cash flows occur at the end of each period.Which is NOT an essential element of an ordinary annuity? Select the correct response: The payments are made at equal interval of time. The amounts of all payments are equal. The first payment is made at the beginning of the first period. Compound interest is paid on all amounts in the annuity.A series of equal payments occurring at equal interval of time, known as. Ans: ____________ A type of annuity where the first payment is made at the end of the first period. Ans: ___________________ A type of annuity whose sum is infinite. Ans: _____________ A type of annuity where the first payment is made at the beginning of the first period. Ans: ______________ A type of annuity where the first payment is made later after the end of the first period. Ans: ___________________