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Old Exam Questions - Time Value of Money - Questions
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Time Value of Money - Questions
1.
Given an equivalent number of payments and interest rates, the future value of an
annuity due is typically a little more that the future value of a regular annuity.
A.
True
B.
False
2.
The future value of an annuity due will always be greater than the future value of an
equivalent ordinary annuity, whereas the present value of an annuity due will always be
less than the present value of an equivalent ordinary annuity.
A.
True
B.
False
3.
The value of a perpetuity with cash flows starting in Year 1, minus the value of a
perpetuity with equivalent cash flows starting in Year N+1, where both perpetuities are
valued as of Year 0, is nothing more than the present value of an ordinary annuity with
equivalent cash flows in Years 1 through N.
A.
True
B.
False
4.
Time value of money is nothing more than mathematical manipulation.
In fact, you can
find the present value of a cash flow by using a negative interest rate and using a future
value calculation.
A.
True
B.
False
5.
All other factors held constant, the present value of a given annual annuity decreases as
the number of discounting/compounding periods per year increases.
A.
True
B.
False
6.
A 15-year mortgage will have larger monthly payments than a 30-year mortgage of the
same amount and same interest rate.
A.
True
B.
False
7.
Suppose someone offered you the choice of two equally risky annuities, each paying
$10,000 per year for five years.
One is an ordinary (or deferred) annuity, while the other
is an annuity due.
Given the mathematics of finance, we know that the present value of

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Old Exam Questions - Time Value of Money - Questions
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the annuity due will exceed the present value of the ordinary annuity, while the future
value of the annuity due will be less than the future value of the ordinary annuity.
A.
True
B.
False
8.
Suppose someone offered you the choice of two equally risky annuities, each paying
$10,000 per year for five years.
One is an ordinary (or deferred) annuity, while the other
is an annuity due.
Given the mathematics of finance, we know that if interest rates
increase, the difference between the present value of the ordinary annuity and the
present value of the annuity due will remain the same.
A.
True
B.
False
9.
As shown in class, it is possible to find the present value of an annuity as the difference
of two perpetuities.
However, it is impossible to use an equivalent approach to find the
future value of an annuity.
A.
True
B.
False
10.
Mathematically, discounting a single, lump-sum value over a 10-year period at a fixed
interest rate is equivalent to compounding the same lump-sum value, at the same fixed
interest rate, over a negative 10-year period.
A.

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