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ch4 - ch4 Student Multiple Choice Questions 1 An annuity...

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ch4 Student: _______________________________________________________________________________________ Multiple Choice Questions 1. An annuity stream of cash flow payments is a set of: A. level cash flows occurring each time period for a fixed length of time. B. level cash flows occurring each time period forever. C. increasing cash flows occurring each time period for a fixed length of time. D. increasing cash flows occurring each time period forever. E. arbitrary cash flows occurring each time period for no more than 10 years. 2. Annuities where the payments occur at the end of each time period are called _____ , whereas _____ refer to annuity streams with payments occurring at the beginning of each time period. 3. An annuity stream where the payments occur forever is called a(n): 4. The interest rate expressed in terms of the interest payment made each period is called the _____ rate. 5. The interest rate expressed as if it were compounded once per year is called the _____ rate. A. stated interest B. compound interest C. effective annual D. periodic interest E. daily interest
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6. The interest rate charged per period multiplied by the number of periods per year is called the _____ rate. 7. You are comparing two annuities which offer monthly payments for ten years. Both annuities are identical with the exception of the payment dates. Annuity A pays on the first of each month while annuity B pays on the last day of each month. Which one of the following statements is correct concerning these two annuities? 8. You are comparing two investment options. The cost to invest in either option is the same today. Both options will provide you with $20,000 of income. Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each. Option B pays five annual payments of $4,000 each. Which one of the following statements is correct given these two investment options?
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