# Exam 2_ANSWERS - Time Value of Money Answer Key FI 3300...

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Time Value of Money Answer Key FI 3300 Summer 2002 1. B - this describes an annuity; a perpetuity lasts forever, not a fixed period of time. 2. A 3. B - this is essentially the same as 2. An increase in the number of compounding periods per year will increase the effective interest rate and therefore decrease PV. 4. A - if the interest rate is 0, the PV of an annuity due = PV of ordinary annuity. As interest rate increases, the difference between PV’s increases. 5. D - PV of ordinary annuity always less than PV of annuity due. 6. A 7. A 8. A 9. B 10. A NOTE THAT THERE ARE NUMEROUS WAYS TO ANSWER MANY OF THE FOLLOWING PROBLEMS. I SHOW AT LEAST ONE WAY FOR EACH QUESTION. MY WAY IS NOT NECESSARILY THE BEST WAY, BUT IT IS A WAY TO SOLVE THE PROBLEM. 11. \$4,415.93 PV = 662.39/.15 12. 4.729% PV=-1; FV=4; N=30; CPT I/Y (you can use any PV or FV as long as FV = 4xPV 13. 8.947% PV=-21400; N=48; PMT=532; CPT I/Y 14. \$7,756.59 Set calculator to BGN mode. PMT=821.75; N=18; I/Y=9; CPT PV. 15. \$10,753.75

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