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FF Qs &amp; As Topic 2 Part 1

# FF Qs &amp; As Topic 2 Part 1 - Topic2 FinancialMaths...

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Feedback Forum Questions Topic 2  Financial Maths Part 1 Question 1 An annuity in which the first cash flow occurs immediately is called an:  a) perpetuity b) annuity due  c) deferred annuity  d) none of the above  An annuity due is an annuity whereby the payments are made or received at  the beginning of the annuity period. 1

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Question  2 After   two   years   a   \$10,000   investment   earning   8%   p.a.   compounded   six  monthly will accumulate to Use FV of a single sum formula: FV = PV(1 + r) n      FV = \$10,000 (1 + 0.04) 4   FV = \$10,000 (1.1698) FV = \$11,698.58 2
Question 3 A finance company offers a choice of investments using either simple interest  or compound interest, both at a rate of 10% per annum. If an investor wants to  invest \$20,000 for 10 years, what is the difference in future values of the  investment under compounding compared with simple interest.   i) Simple Interest – interest is calculated on the original investment only -  use the formula:       FV = PV(1 + (r n)) FV = \$20,000(1 + (0.10 x 10) FV = \$20,000 (1 + 1) FV = \$20,000 (2) FV = \$40,000 ii) Compound interest – interest is calculated on the original principal plus

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FF Qs &amp; As Topic 2 Part 1 - Topic2 FinancialMaths...

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