Question 1

Sinking funds accumulate money in the present to accumulate a specific sum at a predetermined present date.

Accepted Answer

A) True 
 B)False

Question 2

The same formula can be used to find the value of an annuity or an annuity due by adding one payment.

Accepted Answer

A) True 
 B)False

Question 3

Ed Sloan invests $1,600 at the beginning of each year for eight years into an account that pays 10% compounded semiannually. The value of the annuity due is:

Accepted Answer

A)  $41,344.48 
B)  $1,600.00 
C)  $38,744.48 
D)  $37,744.48 
E)  None of these 
A)  $41,344.48 
B)  $1,600.00 
C)  $38,744.48 
D)  $37,744.48 
E)  None of these

Question 4

Lance Rice has decided to invest $1,200 quarterly for eight years in an ordinary annuity at 4%. The total cash value of the annuity at end of year 8 is

Accepted Answer

A)  $46,642.80 
B)  $44,992.88 
C)  $46,246.80 
D)  $44,292.92 
E)  None of these 
A)  $46,642.80 
B)  $44,992.88 
C)  $46,246.80 
D)  $44,292.92 
E)  None of these

Question 5

Contingent annuities:

Accepted Answer

A)  Have a fixed amount of payments 
B)  Pay for 30 years 
C)  Are only paid by the month 
D)  Have no fixed amount of payments 
E)  None of these 
A)  Have a fixed amount of payments 
B)  Pay for 30 years 
C)  Are only paid by the month 
D)  Have no fixed amount of payments 
E)  None of these

Question 6

An annuity is one lump sum payment.

Accepted Answer

A) True 
 B)False

Question 7

Sinking funds utilize the concept of compound interest.

Accepted Answer

A) True 
 B)False

Question 8

Ted Williams made deposits of $500 at the end of each year for eight years. The rate is 8% compounded annually. The value of Ted's annuity at the end of eight years is

Accepted Answer

A)  $5,318.31 
B)  $4,318.30 
C)  $2,837.03 
D)  $2,873.30 
E)  None of these 
A)  $5,318.31 
B)  $4,318.30 
C)  $2,837.03 
D)  $2,873.30 
E)  None of these

Question 9

Jones Co. borrowed money that is to be repaid in 12 years. So that the loan will be paid back at end of the 12th year, the company invests $8,000 at end of each year at 5% compounded annually. The amount of the original loan was

Accepted Answer

A)  $127,337.01 
B)  $70,905.60 
C)  $127,636.80 
D)  $70,950.60 
E)  None of these 
A)  $127,337.01 
B)  $70,905.60 
C)  $127,636.80 
D)  $70,950.60 
E)  None of these

Question 10

Interest is not calculated in ordinary annuities.

Accepted Answer

A) True 
 B)False

Question 11

An annuity due can use the ordinary annuity formula if the ordinary annuity formula is adjusted:

Accepted Answer

A)  Add one payment to total value 
B)  Multiply results by 1+i 
C)  Add two payments to total value 
D)  Subtract three payments from total value 
E)  None of these 
A)  Add one payment to total value 
B)  Multiply results by 1+i 
C)  Add two payments to total value 
D)  Subtract three payments from total value 
E)  None of these

Question 12

The present value of an annuity looks from the present to the future.

Accepted Answer

A) True 
 B)False

Question 13

Maturity value is equal to principal plus interest.

Accepted Answer

A) True 
 B)False

Question 14

Insurance companies do not use annuities.

Accepted Answer

A) True 
 B)False

Question 15

A contingent annuity has a fixed amount of payments.

Accepted Answer

A) True 
 B)False

Question 16

How much would Howard Steele need to invest today so that he may withdraw $12,000 each year for the next 20 years, assuming a rate of 8% compounded annually?

Accepted Answer

A)  $117,817.77 
B)  $454,144.00 
C)  $112,817.20 
D)  $549,144 
E)  None of these 
A)  $117,817.77 
B)  $454,144.00 
C)  $112,817.20 
D)  $549,144 
E)  None of these

Question 17

Annuities can be done manually or by computer.

Accepted Answer

A) True 
 B)False

Question 18

Abby Mia wants to know how much must be deposited in her local bank today so that she will receive yearly payments of $18,000 for 20 years at a current rate of 9% compounded annually.

Accepted Answer

A)  $1,085.82 
B)  $1,463.13 
C)  $164,313.82 
D)  $163,313 
E)  None of these 
A)  $1,085.82 
B)  $1,463.13 
C)  $164,313.82 
D)  $163,313 
E)  None of these

Question 19

An annuity due provides a lower final value compared with an ordinary annuity.

Accepted Answer

A) True 
 B)False

Question 20

An annuity is:

Accepted Answer

A)  Not used by lotteries today 
B)  A one-time payment 
C)  A stream of payments 
D)  Never made up of equal payments 
E)  None of these 
A)  Not used by lotteries today 
B)  A one-time payment 
C)  A stream of payments 
D)  Never made up of equal payments 
E)  None of these

Exam 20: Annuities and Sinking Funds

Sinking funds accumulate money in the present to accumulate a specific sum at a predetermined present date.

The same formula can be used to find the value of an annuity or an annuity due by adding one payment.

Ed Sloan invests $1,600 at the beginning of each year for eight years into an account that pays 10% compounded semiannually. The value of the annuity due is:

Lance Rice has decided to invest $1,200 quarterly for eight years in an ordinary annuity at 4%. The total cash value of the annuity at end of year 8 is

Contingent annuities:

An annuity is one lump sum payment.

Sinking funds utilize the concept of compound interest.

Ted Williams made deposits of $500 at the end of each year for eight years. The rate is 8% compounded annually. The value of Ted's annuity at the end of eight years is

Jones Co. borrowed money that is to be repaid in 12 years. So that the loan will be paid back at end of the 12th year, the company invests $8,000 at end of each year at 5% compounded annually. The amount of the original loan was

Interest is not calculated in ordinary annuities.

An annuity due can use the ordinary annuity formula if the ordinary annuity formula is adjusted:

The present value of an annuity looks from the present to the future.

Maturity value is equal to principal plus interest.

Insurance companies do not use annuities.

A contingent annuity has a fixed amount of payments.

How much would Howard Steele need to invest today so that he may withdraw $12,000 each year for the next 20 years, assuming a rate of 8% compounded annually?

Annuities can be done manually or by computer.

Abby Mia wants to know how much must be deposited in her local bank today so that she will receive yearly payments of $18,000 for 20 years at a current rate of 9% compounded annually.

An annuity due provides a lower final value compared with an ordinary annuity.

An annuity is:

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