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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

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.

jeff jeffy answered 1 year ago
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