Problem 1. The present value of a stream of equal cash flows occurring at regular intervals of time can be computed using a financial calculator. In this case, the amount of each cash flow is input as the:
a. present value.
b. payment.
c. future value.
d. number of time periods.
e. interest rate per period.
Problem 2. Which one of the following is an annuity but NOT a perpetuity?
a. $300 every two to three weeks for one year
b. a monthly payment of $425 forever
c. payments on the first day of each month in varying amounts for ten months
d. $600 on the last day of each month for two years
e. $400 on the first day of the second, fifth, seventh, and tenth months of each year
Problem 3. Which one of the following has the highest effective annual rate?
a. 6 percent compounded annually
b. 6 percent compounded semi-annually
c. 6 percent compounded quarterly
d. 6 percent compounded monthly
e. 6 percent compounded daily
Problem 4. Which one of the following best defines an annuity?
a. stream of increasing annual dividend payments over an infinite period of time
b. a stream of decreasing payments occurring at regular intervals for a fixed period of time
c. a level stream of payments occurring at equal intervals of time
d. a level stream of payments occurring at random intervals for an infinite period of time
e. a series of equal payments occurring at random intervals over a fixed period of time