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Which of the following statements are true? Question 1 options: The payment of an annuity cannot...

Which of the following statements are true?

Question 1 options:

The payment of an annuity cannot vary over time

The present value of annuity due is calculated on the same day the first payment occurs

In a deferred annuity, interest charges begin to accrue more than one period after the annuity begins.

The future value of annuity due is calculated on the same day the last payment occurs

The present value of annuity can be calculated as the sum of the present values of each individual payment

The expected cash flow approach requires companies to use a higher interest rate to reflect the risk of the investment

Solutions

Expert Solution

The payment of an annuity cannot vary over time. FALSE. Annuity is series of paid at equal intervals. Amount of annuity can however vary.

The present value of annuity due is calculated on the same day the first payment occurs. TRUE. Annuity due is annuity payment at beginning of each period. Therefore 1st payment in case of annuity due is always on day zero.

In a deferred annuity, interest charges begin to accrue more than one period after the annuity begins. TRUE.

The future value of annuity due is calculated on the same day the last payment occurs. FALSE. In case of annuity due last payment occurs on 1st day of last period which future value is calculated as on last day of last period.

The present value of annuity can be calculated as the sum of the present values of each individual payment. TRUE

The expected cash flow approach requires companies to use a higher interest rate to reflect the risk of the investment. TRUE

jeff jeffy answered 1 year ago
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