Explain whether the following statement is true or false: $100 a year for 10 years is anannuity, but $100 in Year 1, $200 in Year 2, and $400 in Years 3 through 10 does not constitutean annuity. However, the second series contains an annuity.
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A: Computation:
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Explain whether the following statement is true or false: $100 a year for 10 years is an
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- The difference between an ordinary annuity and an annuity due is that each of the payments of the annuity due earns interest for one additional year (period). * True False1.Which of the following statements is CORRECT? Statement 1. The difference between the PV of an annuity due and the PV of an ordinary annuity is that each of the payments of the annuity due is discounted by one more year (period). Statement 2. The difference between an ordinary annuity and an annuity due is that each of the payments of the annuity due earns interest for one additional year (period). Statement 3. An annuity is a series of equal payments made at fixed equal-length intervals for a specified number of periods. Statement 3 only. All of the statements are correct. None of the statement is correct. Statement 1 only. Statement 2 only. Given some amount to be received several years in the future, if the interest rate increases, the present value of the future amount will Be higher Be variable. Be lower. Cannot tell. Stay the same. WITH EXPLANATION PLEASEWhat is the present value of a perpetuity of $8,447 per year given an interest rate of 8.2%, assuming that the first cash flow occurs today (that is, in year 0)? Record your answer as a dollar amount rounded to 2 decimal places , but do not include a dollar sign or any commas in your answer . For example , enter $ 12,327.24987 as 12327.25 .
- Which of the following is false? The future value of a deferred annuity is equal to the future value of an annuity not deferred. If the first payment is received at the end of the fifth period, it means the ordinary annuity is deferred for five periods. The present value of a deferred annuity is less than the present value of an annuity not deferred. To calculate the present value of a deferred annuity, determine the present value of an ordinary annuity for the entire period and subtract the present value of the payments which were not received during the deferral period.Which of the following statements is correct? The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as every quarter or every year. A series of unequal cash flows that occur at regular intervals, such as every quarter, is an annuity. The cash flows for an ordinary annuity all occur at the beginning of the periods. The cash flows for an annuity due all occur at the ends of the periods.Q. No. 02: Find the future value of the following annuities. The first payment in these annuities is made at the end of Year 1, so they are ordinary annuities. a) $300 per year for 10 years at 10% b) $100 per year for 5 years at 5% c) $300 per year for 5 years at 0% d) Now rework parts a, b, and c assuming that payments are made at the beginning of each year; that is, they are annuities due. Q.No. 03: Solve following time line, draw a clear diagram in your answer sheet. Assume opportunity cost of 12% 6 7 3 500 500 500 300 300 300 300 300 Q. No. 04: Discuss following terms with examples; a) Perpetuity b) Par Value c) Coupon Rate d) Zero-Coupon Bond
- 6. Present Value of an Annuity The table below contains information on four different annuities. a) Calculate the present value of each annuity if it is i) An ordinary annuity ii) An annuity due b) Compare your findings. All else being identical, which type of annuity-ordinary annuity or annuity due-is preferable? Why? Part Annual CF Interest Rate Deposit Period A $12,000 B $52,000 C $20,000 D $24,000 8% 10% 6% 12% (Years) 8 15 20 83.) Find the present value of an annuity in perpetuity where payments are $1, 000 at the beginning of the first year, third year, etc. and payments are $1, 500 at the beginning of the second year, fourth year, etc. Here effective annual interest is 5%For each of the following situations involving annuities, solve for the unknown (?). Assume that interest is compounded annually and that all annuity amounts are received at the end of each period. (i = interest rate, and n = number of years) Present Value Annuity Amount i n1. ? $ 3,000 8% 52. $ 242,980 75,000 ? 43. 161,214 20,000 9 ?4. 500,000 80,518 ? 85. 250,000 ? 10 4 Sandy Kupchack just graduated from State University with a bachelor’s degree in history. During her four years at the university, Sandy accumulated $12,000 in student loans. She asks for your help in determining the…
- Find the following values assuming a regular, or ordinary, annuity: a. The present value of $400 per year for ten years at 10 percent. b. The future value of $400 per year for ten years at 10 percent. c. The present value of $200 per year for five years at 5 percent.d. The future value of $200 per year for five years at 5 percent.Repeat Problem above but assume the annuities are annuities due.(Dollar signs, decimal places, and commas all matter)Which of the following statements is CORRECT? The cash flows for an annuity may vary from period to period, but they must occur at regular intervals, such as once a year. The cash flows for an annuity due must all occur at the beginning of the periods. The cash flows for an ordinary annuity occur at the beginning of the periods. If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as an ordinary annuity. If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.Which of the following statements about annuities are true? Check all that apply. An ordinary annuity of equal time earns less interest than an annuity due. A perpetuity is a series of equal payments made at fixed intervals that continue infinitely and can be thought of as an infinite annuity. When equal payments are made at the end of each period for a certain time period, they are treated as ordinary annuities. When equal payments are made at the end of each period for a certain time period, they are treated as an annuity due.