Accounting D103 part 2 WGU
2
0/1
If an annuity due and an ordinary annuity have the same number of equal payments
and the same interest rates, what is true regarding the present values of each? -
ANS-Correct
The present value of the annuity due is greater than the present value of the ordinary
annuity.
Correct. An annuity due has a higher present value than an ordinary annuity because
payments are made sooner with an annuity due (at the beginning of the period) than
with an ordinary annuity (at the end of the period).
3
0/1
Al Darby wants to withdraw $20,000 (including principal) from an investment fund at the
end of each year for five years.
How should he compute his required initial investment at the beginning of the first year if
the fund earns 10% compounded annually? - ANS-$20,000 times the present value of a
5-year, 10% ordinary annuity of 1
Correct. Withdrawals will be periodic (each year), not a one-time withdrawal.
Additionally, withdrawals occur at the end of each period. Therefore, this is an ordinary
annuity problem.
1
1/1
Paula purchased a house for $300,000. After providing a 20% down payment, she
borrowed the balance from the local savings and loan under a 30-year 6% mortgage
loan requiring equal monthly installments at the end of each month.
Which time value concept would be used to determine the monthly payment? -
ANS-Correct
Present value of an ordinary annuity
Correct. Payments are due periodically at the end of the period (due at the end of each
month), this is a present value of an ordinary annuity problem.
, 2
1/1
An accountant wishes to find the present value of an annuity of $1 payable at the
beginning of each period at 10% for eight periods. The accountant has only one present
value table which shows the present value of an annuity of $1 payable at the end of
each period.
To compute the present value, which present value factor in the 10% column would the
accountant would use? - ANS-Correct
Eight periods and multiply by (1 + .10)
Correct. The accountant is trying to calculate the present value of an annuity due, where
payments are made at the beginning of the period. The accountant only has the table
for an ordinary annuity, where payments are made at the end of the period. The number
of periods is not different. The only difference is the amount of interest.
0/1
Which time value money concept would show the largest value of $1 at 12% for three
periods? - ANS-Correct
Present value of an annuity due of $1.00
Correct!
1
0/1
Which time value money concept would show the largest value of $1 at 12% for three
periods? - ANS-Correct
Present value of an annuity due of $1.00
Correct!
Al Darby wants to withdraw $20,000 (including principal) from an investment fund at the
end of each year for five years.
How should he compute his required initial investment at the beginning of the first year if
the fund earns 10% compounded annually? - ANS-Correct
$20,000 times the present value of a 5-year, 10% ordinary annuity of 1
Correct. Withdrawals will be periodic (each year), not a one-time withdrawal.
Additionally, withdrawals occur at the end of each period. Therefore, this is an ordinary
annuity problem.
2
2
0/1
If an annuity due and an ordinary annuity have the same number of equal payments
and the same interest rates, what is true regarding the present values of each? -
ANS-Correct
The present value of the annuity due is greater than the present value of the ordinary
annuity.
Correct. An annuity due has a higher present value than an ordinary annuity because
payments are made sooner with an annuity due (at the beginning of the period) than
with an ordinary annuity (at the end of the period).
3
0/1
Al Darby wants to withdraw $20,000 (including principal) from an investment fund at the
end of each year for five years.
How should he compute his required initial investment at the beginning of the first year if
the fund earns 10% compounded annually? - ANS-$20,000 times the present value of a
5-year, 10% ordinary annuity of 1
Correct. Withdrawals will be periodic (each year), not a one-time withdrawal.
Additionally, withdrawals occur at the end of each period. Therefore, this is an ordinary
annuity problem.
1
1/1
Paula purchased a house for $300,000. After providing a 20% down payment, she
borrowed the balance from the local savings and loan under a 30-year 6% mortgage
loan requiring equal monthly installments at the end of each month.
Which time value concept would be used to determine the monthly payment? -
ANS-Correct
Present value of an ordinary annuity
Correct. Payments are due periodically at the end of the period (due at the end of each
month), this is a present value of an ordinary annuity problem.
, 2
1/1
An accountant wishes to find the present value of an annuity of $1 payable at the
beginning of each period at 10% for eight periods. The accountant has only one present
value table which shows the present value of an annuity of $1 payable at the end of
each period.
To compute the present value, which present value factor in the 10% column would the
accountant would use? - ANS-Correct
Eight periods and multiply by (1 + .10)
Correct. The accountant is trying to calculate the present value of an annuity due, where
payments are made at the beginning of the period. The accountant only has the table
for an ordinary annuity, where payments are made at the end of the period. The number
of periods is not different. The only difference is the amount of interest.
0/1
Which time value money concept would show the largest value of $1 at 12% for three
periods? - ANS-Correct
Present value of an annuity due of $1.00
Correct!
1
0/1
Which time value money concept would show the largest value of $1 at 12% for three
periods? - ANS-Correct
Present value of an annuity due of $1.00
Correct!
Al Darby wants to withdraw $20,000 (including principal) from an investment fund at the
end of each year for five years.
How should he compute his required initial investment at the beginning of the first year if
the fund earns 10% compounded annually? - ANS-Correct
$20,000 times the present value of a 5-year, 10% ordinary annuity of 1
Correct. Withdrawals will be periodic (each year), not a one-time withdrawal.
Additionally, withdrawals occur at the end of each period. Therefore, this is an ordinary
annuity problem.
2
