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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