ACCT 3101 CHAPTER 6-9- QUESTIONS
WITH ANSWERS VERIFIED 100%
CORRECT
The future value of an ordinary annuity will always be:
a) greater than or equal to the future value of an annuity due.
b) equal to the future value of an annuity due.
c) greater than the future value of an annuity due.
d) less than the future value of an annuity due. - ✔✔d) less than the future value of
an annuity due.
Jamie wants to set aside enough money now to go on vacation in two years. She has developed
the following estimates:
Estimated Cash Outflows Probability Assessment
$2,700 30%
$3,300 50%
$4,500 20%
Time periods Factor
PV of 1 2 .90703
PV Annuity of 1 2 1.85941
FV of 1 2 1.10250
FV Ordinary annuity 2 2.05
, How much should she deposit today in an account earning 5%, compounded annually, to have
sufficient cash on hand to pay for the vacation?
a, $3,704
b, $3,360
c, $6,248
d, $3,048 - ✔✔Expected cash outflow is [($2,700 X 30%) + ($3,300 X 50%) + ($4,500 X 20%)]
= $3,360; the present value of $3,360 is ($3,360 X .90703) =$3,048.
d
Which of the following investments will result in the smallest future amount?
a, One that offers quarterly compounding.
b, One that offers semi-annual compounding.
c, One that offers annual compounding.
d, One that offers monthly compounding - ✔✔c, One that offers annual compounding.
On December 1, 2014, Doreen Company sold land to McKnight Company. The two companies
entered into an installment sales contract at a predetermined interest rate. The contract
required five equal annual payments with the first payment due on December 1, 2014, the date
of the sale. What present value concept is appropriate for this situation?
a, Future amount of an annuity of 1 for five periods
b, Present value of an annuity due of 1 for five periods
c, Present value of an ordinary annuity of 1 for five periods
d. Future amount of 1 for five periods - ✔✔b,
Present value of an annuity due of 1 for five periods
A deferred annuity is one in which the rents begin:
a, at the beginning of each period.
b, after a specified number of periods.
c, before a specified number of periods.
WITH ANSWERS VERIFIED 100%
CORRECT
The future value of an ordinary annuity will always be:
a) greater than or equal to the future value of an annuity due.
b) equal to the future value of an annuity due.
c) greater than the future value of an annuity due.
d) less than the future value of an annuity due. - ✔✔d) less than the future value of
an annuity due.
Jamie wants to set aside enough money now to go on vacation in two years. She has developed
the following estimates:
Estimated Cash Outflows Probability Assessment
$2,700 30%
$3,300 50%
$4,500 20%
Time periods Factor
PV of 1 2 .90703
PV Annuity of 1 2 1.85941
FV of 1 2 1.10250
FV Ordinary annuity 2 2.05
, How much should she deposit today in an account earning 5%, compounded annually, to have
sufficient cash on hand to pay for the vacation?
a, $3,704
b, $3,360
c, $6,248
d, $3,048 - ✔✔Expected cash outflow is [($2,700 X 30%) + ($3,300 X 50%) + ($4,500 X 20%)]
= $3,360; the present value of $3,360 is ($3,360 X .90703) =$3,048.
d
Which of the following investments will result in the smallest future amount?
a, One that offers quarterly compounding.
b, One that offers semi-annual compounding.
c, One that offers annual compounding.
d, One that offers monthly compounding - ✔✔c, One that offers annual compounding.
On December 1, 2014, Doreen Company sold land to McKnight Company. The two companies
entered into an installment sales contract at a predetermined interest rate. The contract
required five equal annual payments with the first payment due on December 1, 2014, the date
of the sale. What present value concept is appropriate for this situation?
a, Future amount of an annuity of 1 for five periods
b, Present value of an annuity due of 1 for five periods
c, Present value of an ordinary annuity of 1 for five periods
d. Future amount of 1 for five periods - ✔✔b,
Present value of an annuity due of 1 for five periods
A deferred annuity is one in which the rents begin:
a, at the beginning of each period.
b, after a specified number of periods.
c, before a specified number of periods.
