1. Which one of the following statements is correct?
Most loans are a form of a perpetuity.
Perpetuities are finite but annuities are not.
A perpetuity comprised of $200 monthly payments is worth less than an annuity comprised of $200 monthly payments, given an interest rate of 10 percent, compounded monthly.
The present value of a perpetuity cannot be computed, but the future value can.
An ordinary annuity is worth less than an annuity due given equal annual cash flows for 5 years at 5 percent interest, compounded annually.
2. Which of the following statements indicates the correct relationship between present value and future value interest factors?
The future value factor is the exponent of the present value factor.
The present value factor is the exponent of the future value factor.
The present value and future value factors are equal to each other.
The factors are reciprocals of each other.
There is no relationship between these two factors.
3. Bob is going to receive $5,000 bonus in 1 year. He wants to know the present value of it. The interest rate he used in his calculation is called _____________.
effective rate
simple rate
current yield
discount rate
compound rate
4. For a discount bond, we should see its __________.
I. market price = call price
II. market price < face value
III. coupon rate < yield-to-maturity
IV. current yield = yield-to-maturity
I and II only
I, II, and III only
II and III only
II, III, and IV only
II and IV only