In: Finance
Which of the following statements are true?
Question 1 options:
The payment of an annuity cannot vary over time |
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The present value of annuity due is calculated on the same day the first payment occurs |
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In a deferred annuity, interest charges begin to accrue more than one period after the annuity begins. |
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The future value of annuity due is calculated on the same day the last payment occurs |
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The present value of annuity can be calculated as the sum of the present values of each individual payment |
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The expected cash flow approach requires companies to use a higher interest rate to reflect the risk of the investment |
The payment of an annuity cannot vary over time - FALSE
An annuity can vary over time. An annuity only means a recurring payment or receipts.
The present value of annuity due is calculated on the same day the first payment occurs - FALSE
The present value of annuity due is calculated on the first day, however, the first payment occours after the first period
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 - TRUE
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 - TRUE
The expected cash flow approach requires companies to use a higher interest rate to reflect the risk of the investment - TRUE
Riskier the expected cash-flows, higher is the interest rate which essentially reflects the risk associated with the investment.