Corporate Finance: A Focused Approach (mindtap Course List)
7th Edition
ISBN: 9781337909747
Author: Michael C. Ehrhardt, Eugene F. Brigham
Publisher: South-Western College Pub
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Chapter 4, Problem 3Q
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Which of the following statements about annuities are true? Check all that apply.
An ordinary annuity of equal time earns less interest than an annuity due.
A perpetuity is a series of equal payments made at fixed intervals that continue infinitely and can be thought of as an infinite annuity.
When equal payments are made at the end of each period for a certain time period, they are treated as ordinary annuities.
When equal payments are made at the end of each period for a certain time period, they are treated as an annuity due.
Which of the following statements is most likely correct?
OA perpetuity is an infinite stream of payments in varying amounts occurring at regular time intervals.
O The cash flows for an annuity can vary in amounts, and they can occur at irregular intervals.
O Time periods that can be used in the time value of money computations are not restricted to months and years.
O An annuity due has the first payment occurring one period from now, while an ordinary annuity has the first payment occurring now.
1.Which of the following statements is CORRECT?
Statement 1. The difference between the PV of an annuity due and the PV of an ordinary annuity is that each of the payments of the annuity due is discounted by one more year (period).
Statement 2. The difference between an ordinary annuity and an annuity due is that each of the payments of the annuity due earns interest for one additional year (period).
Statement 3. An annuity is a series of equal payments made at fixed equal-length intervals for a specified number of periods.
Statement 3 only.
All of the statements are correct.
None of the statement is correct.
Statement 1 only.
Statement 2 only.
Given some amount to be received several years in the future, if the interest rate increases, the present value of the future amount will
Be higher
Be variable.
Be lower.
Cannot tell.
Stay the same.
WITH EXPLANATION PLEASE
Chapter 4 Solutions
Corporate Finance: A Focused Approach (mindtap Course List)
Ch. 4 - Prob. 1QCh. 4 - Prob. 2QCh. 4 - An annuity is defined as a series of payments of a...Ch. 4 - If a firms earnings per share grew from 1 to 2...Ch. 4 - Prob. 5QCh. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5P
Ch. 4 - Prob. 6PCh. 4 - An investment will pay 100 at the end of each of...Ch. 4 - You want to buy a car, and a local bank will lend...Ch. 4 - Find the following values, using the equations,...Ch. 4 - Prob. 10PCh. 4 - Prob. 11PCh. 4 - Find the future value of the following annuities....Ch. 4 - Prob. 13PCh. 4 - Prob. 14PCh. 4 - Prob. 15PCh. 4 - Prob. 16PCh. 4 - Prob. 17PCh. 4 - Prob. 18PCh. 4 - Universal Bank pays 7% interest, compounded...Ch. 4 - Prob. 20PCh. 4 - Prob. 21PCh. 4 - Prob. 22PCh. 4 - A mortgage company offers to lend you 85,000; the...Ch. 4 - Prob. 24PCh. 4 - Prob. 25PCh. 4 - Prob. 26PCh. 4 - Prob. 27PCh. 4 - Prob. 28PCh. 4 - Prob. 29PCh. 4 - Your company is planning to borrow 1 million on a...Ch. 4 - It is now January 1. You plan to make a total of 5...Ch. 4 - Prob. 32PCh. 4 - Prob. 33PCh. 4 - You want to accumulate 1 million by your...Ch. 4 - Prob. 1MCCh. 4 - Prob. 2MCCh. 4 - Prob. 3MCCh. 4 - Prob. 4MCCh. 4 - Prob. 5MCCh. 4 - Prob. 6MCCh. 4 - Prob. 7MCCh. 4 - Prob. 8MCCh. 4 - Prob. 9MCCh. 4 - Prob. 10MCCh. 4 - Prob. 11MCCh. 4 - Prob. 12MCCh. 4 - Prob. 13MC
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- Which of the following statements is CORRECT? The cash flows for an annuity may vary from period to period, but they must occur at regular intervals, such as once a year. The cash flows for an annuity due must all occur at the beginning of the periods. The cash flows for an ordinary annuity occur at the beginning of the periods. If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as an ordinary annuity. If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.arrow_forwardWhich of the following is false? The future value of a deferred annuity is equal to the future value of an annuity not deferred. If the first payment is received at the end of the fifth period, it means the ordinary annuity is deferred for five periods. The present value of a deferred annuity is less than the present value of an annuity not deferred. To calculate the present value of a deferred annuity, determine the present value of an ordinary annuity for the entire period and subtract the present value of the payments which were not received during the deferral period.arrow_forwardThe difference between an ordinary annuity and an annuity due is that each of the payments of the annuity due earns interest for one additional year (period). * True Falsearrow_forward
- 1. Which statement is FALSE? A. Future value annuity is an example of annuity. B. A perpetuity is an annuity that has maturity period. C. An annuity is a series of equal payment made for a specified number of years. D. Ordinary annuity is an annuity in which the cash flows occur at the end of each period.arrow_forwardWhich of the following statements is correct? The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as every quarter or every year. A series of unequal cash flows that occur at regular intervals, such as every quarter, is an annuity. The cash flows for an ordinary annuity all occur at the beginning of the periods. The cash flows for an annuity due all occur at the ends of the periods.arrow_forwardThe difference between an ordinary annuity and a annuity due is: A ordinary annuity is when payments are made at the beginning of each period, while for a annuity due the payments are made at the end of each period. An annuity due is an annuity where the loan is repaid in one lump sum at the end of the annuity, while for an ordinary annuity regular payments are made throughout the period of the annuity. An annuity due is when interest is compounded at the same time as payments are made, while for a ordinary annuity the interest and payment periods are different. A ordinary annuity is when payments are made at the end of each period, while for a annuity due the payments are made at the beginning of each period. An ordinary annuity is when interest is compounded at the same time as payments are made, while for a annuity due the interest and payment periods are different.arrow_forward
- Which of the following statements regarding annuities is FALSE? (1) A difference between an annuity and a perpetuity is that an annuity ends after some fixed number of payments. (II) When using the present value formula of perpetuity (C/r) to calculate the value at date 0, the first payment occurs at date 0. (III) When using the present value formula of growing perpetuity (C/(r-g)) to calculate the value at date 0, the first payment occurs at date 1 and doesn't include growth. (IV) In the growing perpetuity formula (C/(r-g)), g cannot be negative. (V) In the growing perpetuity formula (C/(r-g)), g can be greater than r. O A. II, III, IV, V O B. II O C. IV, V O D. II, IV, V O E. II, IVarrow_forwardWhich of the following statement is true? a) An ordinary annuity is an annuity in which the cash flow occurs at the start of each period b) None of the above c) A deferred annuity is an annuity in which the first cash flow occurs at the end of the time period between each subsequent cash flow d) with a credit foncier loan ( a loan for a fixed period with regular repayments) as time passes a smaller proportion of each repayment goes to paying off the interest on the loanarrow_forwardExplain whether the following statement is true or false: $100 a year for 10 years is anannuity, but $100 in Year 1, $200 in Year 2, and $400 in Years 3 through 10 does not constitutean annuity. However, the second series contains an annuity.arrow_forward
- Perpetuity is a type of annuity which has infinite period of payments. The present value of a perpetuity equals to the annual payment divided by the required rate of return. True or Falsearrow_forwardWhich is NOT an essential element of an ordinary annuity? Select the correct response: The payments are made at equal interval of time. The amounts of all payments are equal. The first payment is made at the beginning of the first period. Compound interest is paid on all amounts in the annuity.arrow_forwardWhich of the following statements is CORRECT? If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity. The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods. If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity. The cash flows for an annuity due must all occur at the ends of the periods. The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month.arrow_forward
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What is an Annuity? Are Annuities a Good Investment? Basics of an Annuity, a Whiteboard Animation; Author: Learn to invest;https://www.youtube.com/watch?v=Wq7nq8Gx78w;License: Standard YouTube License, CC-BY