Assighment 05-Time Value of Money 6. Future value of annuities Aa Aa There are t

Question

Assighment 05-Time Value of Money 6. Future value of annuities Aa Aa There are two categories of cash flows: single cash flows, referred to as "lump sums," and annuities. Based on your understanding of annuities, answer the following questions. Which of the following statements about annuities are true? Check all that apply. When equal payments are made at the end of each period for a certain time period, they are treated as ordinary annuities. A perpetuity is a series of equal payments made at fixed intervals that continue infinitely and can be thought of as an infinite annuity. An ordinar annuity of equal time earns less interest than an annuity due When equal payments are made at the end of each period for a certain time period, they are treated as an annuity due. which of the following is an example of an annuity? O A job contract that pays an hourly wage based on the work done on a particular day O A job contract that pays a regular monthly salary for three years Katie had a high monthly food bill before she decided to cook at home every day in order to reduce her expenses. She starts to save $640 every year and plans to renovate her kitchen. She deposits the money in her savings account at the end of each year and earns 10% annual interest. Katie's savings are an example of an annuity. If Katie decides to renovate her kitchen, how much would she have in her savings account at the end of four years? O $2,970.24 O $3,267.26 o $2,028.71 $2,524.70 If Katie deposits the money at the beginning of every year and everything else remains the same, she will save by the end of four years

Explanation / Answer

1.

Correct answers are:

-When equal payments are made at the end of each period for a certain period of time, they are treated as ordinary annuities.

-A perpetuity is a series of equal payments made at fixed intervals that continue infinitely and can be thought of as an infinite annuity.

2.

Correct answer is

A job contract that pays a regular monthly salary for three years.

3.

Annual savings = $640

Annual rate of interest = r = 10% = 0.10

Number of annual savings = n = 4

Future value of annuity = Annuity amount * {(1+r)n-1}/r

Amount in savings account after 4 years = $640*(1.104-1)/0.10 = $2,970.24

Hence, correct answer is $2,970.24

4.

Future value of annuity due = Future value of ordinary annuity * (1+r)

Future value of annuity due = $2,970.24 * 1.10 = $3,267.27

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.