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Chapter 5 Time Value of Money Questions

Chapter 5 Time Value of Money Questions - Time Value of...

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Old Exam Questions - Time Value of Money - Questions Page 1 of 54 Pages 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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