Question 1

There is only one class of annuities.

Accepted Answer

A) True 
 B)False  False

Question 2

The maturity value in compounding is like the value of an annuity.

Accepted Answer

A) True 
 B)False  True

Question 3

Nancy Billows promised to pay her son $600 quarterly for four years. If Nancy can invest her money at 6% in an ordinary annuity, she must invest how much today?

Accepted Answer

A)  $10,759.38 
B)  $10,759.83 
C)  $8,478.76 
D)  $8,478.27 
E)  None of these 
A)  $10,759.38 
B)  $10,759.83 
C)  $8,478.76 
D)  $8,478.27 
E)  None of these C

Question 4

Annuities certain have a specific stated number of payments.

Accepted Answer

A) True 
 B)False

Question 5

In an ordinary annuity the interest on a yearly investment starts building interest:

Accepted Answer

A)  At the beginning of the first period 
B)  At the end of the first period 
C)  During the first period 
D)  After the second period ends 
E)  None of these 
A)  At the beginning of the first period 
B)  At the end of the first period 
C)  During the first period 
D)  After the second period ends 
E)  None of these

Question 6

The amount of money one needs to invest in the future to receive a stream of payments in the present is called the present value of an ordinary annuity.

Accepted Answer

A) True 
 B)False

Question 7

A sinking fund:

Accepted Answer

A)  Requires at the beginning one lump sum payment 
B)  Is really not an annuity 
C)  Aids in meeting a future obligation 
D)  Does not compound its money 
E)  None of these 
A)  Requires at the beginning one lump sum payment 
B)  Is really not an annuity 
C)  Aids in meeting a future obligation 
D)  Does not compound its money 
E)  None of these

Question 8

Annuity due payments are made:

Accepted Answer

A)  Monthly 
B)  At the beginning of the period 
C)  Yearly 
D)  At the end of the period 
E)  None of these 
A)  Monthly 
B)  At the beginning of the period 
C)  Yearly 
D)  At the end of the period 
E)  None of these

Question 9

At the beginning of each year, Bill Ross invests $1,400 semiannually at 8% for nine years. The cash value of the annuity due at the end of the ninth year is

Accepted Answer

A)  $38,739.68 
B)  $37,399.68 
C)  $37,939.86 
D)  $37,339.72 
E)  None of these 
A)  $38,739.68 
B)  $37,399.68 
C)  $37,939.86 
D)  $37,339.72 
E)  None of these

Question 10

An annuity due compared with an ordinary annuity results in a:

Accepted Answer

A)  Higher value 
B)  Lower value 
C)  Same value 
D)  Value three times the annuity due 
E)  None of these 
A)  Higher value 
B)  Lower value 
C)  Same value 
D)  Value three times the annuity due 
E)  None of these

Question 11

Companies that plan to retire bonds in the future could utilize sinking funds.

Accepted Answer

A) True 
 B)False

Question 12

Lee Associates borrowed $60,000. The company plans to set up a sinking fund that will pay back the loan at the end of 12 years. Assuming a rate of 8% compounded semiannually, the amount to be paid into the fund each period is):

Accepted Answer

A)  $1,350 
B)  $1,535.21 
C)  $1,653 
D)  $5,163 
E)  None of these 
A)  $1,350 
B)  $1,535.21 
C)  $1,653 
D)  $5,163 
E)  None of these

Question 13

An ordinary annuity results in the deposit or payment being made at end of the period.

Accepted Answer

A) True 
 B)False

Question 14

All annuities due are based on a semiannual payment.

Accepted Answer

A) True 
 B)False

Question 15

Ordinary annuity payments are made:

Accepted Answer

A)  At the end of the period 
B)  Yearly 
C)  Monthly 
D)  At the beginning of the period 
E)  None of these 
A)  At the end of the period 
B)  Yearly 
C)  Monthly 
D)  At the beginning of the period 
E)  None of these

Question 16

Payments in annuities must be made:

Accepted Answer

A)  Daily 
B)  Quarterly 
C)  Semiannually 
D)  Yearly 
E)  None of these 
A)  Daily 
B)  Quarterly 
C)  Semiannually 
D)  Yearly 
E)  None of these

Question 17

Joe Sullivan invests $9,000 at the end of each year for 20 years. The rate of interest Joe gets is 8% annually. The final value of Joe's investment at the end of the 20th year on this ordinary annuity is

Accepted Answer

A)  $411,588.00 
B)  $88,362.90 
C)  $411,857.68 
D)  $88,632.90 
E)  None of these 
A)  $411,588.00 
B)  $88,362.90 
C)  $411,857.68 
D)  $88,632.90 
E)  None of these

Question 18

The present value of an ordinary annuity:

Accepted Answer

A)  Tells how much money one needs to invest in the future 
B)  Is a lump sum 
C)  Can only be calculated manually 
D)  Indicates how much money needs to be invested today 
E)  None of these 
A)  Tells how much money one needs to invest in the future 
B)  Is a lump sum 
C)  Can only be calculated manually 
D)  Indicates how much money needs to be invested today 
E)  None of these

Question 19

An annuity due requires that deposits or payments be made at the end of the period.

Accepted Answer

A) True 
 B)False

Question 20

The value of an annuity is the series of payments and interest.

Accepted Answer

A) True 
 B)False

Exam 20: Annuities and Sinking Funds

There is only one class of annuities.

The maturity value in compounding is like the value of an annuity.

Nancy Billows promised to pay her son $600 quarterly for four years. If Nancy can invest her money at 6% in an ordinary annuity, she must invest how much today?

Annuities certain have a specific stated number of payments.

In an ordinary annuity the interest on a yearly investment starts building interest:

The amount of money one needs to invest in the future to receive a stream of payments in the present is called the present value of an ordinary annuity.

A sinking fund:

Annuity due payments are made:

At the beginning of each year, Bill Ross invests $1,400 semiannually at 8% for nine years. The cash value of the annuity due at the end of the ninth year is

An annuity due compared with an ordinary annuity results in a:

Companies that plan to retire bonds in the future could utilize sinking funds.

Lee Associates borrowed $60,000. The company plans to set up a sinking fund that will pay back the loan at the end of 12 years. Assuming a rate of 8% compounded semiannually, the amount to be paid into the fund each period is):

An ordinary annuity results in the deposit or payment being made at end of the period.

All annuities due are based on a semiannual payment.

Ordinary annuity payments are made:

Payments in annuities must be made:

Joe Sullivan invests $9,000 at the end of each year for 20 years. The rate of interest Joe gets is 8% annually. The final value of Joe's investment at the end of the 20th year on this ordinary annuity is

The present value of an ordinary annuity:

An annuity due requires that deposits or payments be made at the end of the period.

The value of an annuity is the series of payments and interest.

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