Deck 13: Annuities and Sinking Funds

Question 1

An annuity due provides a lower final value compared with an ordinary annuity.

Answer 1

False

Question 2

The same table can be used to find the value of an annuity due if two extra periods are added along with the subtraction of one payment.

Answer 2

False

Question 3

An annuity is one lump sum payment.

Answer 3

False

Question 4

The amount of money one needs to invest in the future to receive a stream of payments in the present is called the present value of an ordinary annuity.

Question 5

Insurance companies do not use annuities.

Question 6

An annuity due requires that deposits or payments be made at the end of the period.

Question 7

Maturity value is equal to principal plus interest.

Question 8

A contingent annuity has a fixed amount of payments.

Question 9

The value of an annuity is the series of payments and interest.

Question 10

Companies that plan to retire bonds in the future could utilize sinking funds.

Question 11

There is only one class of annuities.

Question 12

Annuities certain have a specific stated number of payments.

Question 13

All annuities due are based on a semiannual payment.

Question 14

Sinking funds utilize the concept of compound interest.

Question 15

Interest is not calculated in ordinary annuities.

Question 16

The present value of an annuity looks from the present to the future.

Question 17

The maturity value in compounding is like the value of an annuity.

Question 18

An ordinary annuity results in the deposit or payment being made at end of the period.

Question 19

Annuities can be done manually or by computer.

Question 20

Sinking funds accumulate money in the present to accumulate a specific sum at a predetermined present date.

Question 21

An annuity is:

A)Not used by lotteries today
B)A one-time payment
C)A stream of payments
D)Never made up of equal payments
E)None of these

Question 22

Ordinary annuity payments are made:

A)At the end of the period
B)Yearly
C)Monthly
D)At the beginning of the period
E)None of these

Question 23

At the beginning of each year, Bill Ross invests $1,400 semiannually at 8% for nine years. The cash value of the annuity due at the end of the ninth year is (use the tables in the handbook):

A)$38,739.68
B)$37,399.68
C)$37,939.86
D)$37,339.68
E)None of these

Question 24

Annuity due payments are made:

A)Monthly
B)At the beginning of the period
C)Yearly
D)At the end of the period
E)None of these

Question 25

How much would Howard Steele need to invest today so that he may withdraw $12,000 each year for the next 20 years, assuming a rate of 8% compounded annually? (Use the tables in the handbook.)

A)$117,817.20
B)$454,144.00
C)$112,817.20
D)$549,144
E)None of these

Question 26

Payments in annuities must be made:

A)Daily
B)Quarterly
C)Semiannually
D)Yearly
E)None of these

Question 27

Ted Williams made deposits of $500 at the end of each year for eight years. The rate is 8% compounded annually. The value of Ted's annuity at the end of eight years is (use the tables in the handbook):

A)$5,318.30
B)$4,318.30
C)$2,837.03
D)$2,873.30
E)None of these

Question 28

Contingent annuities:

A)Have a fixed amount of payments
B)Pay for 30 years
C)Are only paid by the month
D)Have no fixed amount of payments
E)None of these

Question 29

Nancy Billows promised to pay her son $600 quarterly for four years. If Nancy can invest her money at 6% in an ordinary annuity, she must invest how much today? (Use the tables in the handbook.)

A)$10,759.38
B)$10,759.83
C)$8,478.72
D)$8,478.27
E)None of these

Question 30

An annuity due can use the ordinary annuity table if one extra period is added and:

A)Add one payment to total value
B)Subtract one payment from total value
C)Add two payments to total value
D)Subtract three payments from total value
E)None of these

Question 31

A sinking fund:

A)Requires at the beginning one lump sum payment
B)Is really not an annuity
C)Aids in meeting a future obligation
D)Does not compound its money
E)None of these

Question 32

An annuity due compared with an ordinary annuity results in a:

A)Higher value
B)Lower value
C)Same value
D)Value three times the annuity due
E)None of these

Question 33

Joe Sullivan invests $9,000 at the end of each year for 20 years. The rate of interest Joe gets is 8% annually. The final value of Joe's investment at the end of the 20^th year on this ordinary annuity is (use the tables in the handbook):

A)$411,588.00
B)$88,362.90
C)$411,858.00
D)$88,632.90
E)None of these

Question 34

Lee Associates borrowed $60,000. The company plans to set up a sinking fund that will pay back the loan at the end of 12 years. Assuming a rate of 8% compounded semiannually, the amount to be paid into the fund each period is (use the tables in the handbook):

A)$1,350
B)$1,536
C)$1,653
D)$5,163
E)None of these

Question 35

Ed Sloan invests $1,600 at the beginning of each year for eight years into an account that pays 10% compounded semiannually. The value of the annuity due is (use the tables in the handbook):

A)$41,344.48
B)$1,600.00
C)$38,744.48
D)$37,744.48
E)None of these

Question 36

In an ordinary annuity the interest on a yearly investment starts building interest:

A)At the beginning of the first period
B)At the end of the first period
C)During the first period
D)After the second period ends
E)None of these

Question 37

Lance Rice has decided to invest $1,200 quarterly for eight years in an ordinary annuity at 4%. The total cash value of the annuity at end of year 8 is (use the tables in the handbook):

A)$46,642.80
B)$44,992.92
C)$46,246.80
D)$44,292.92
E)None of these

Question 38

The present value of an ordinary annuity:

A)Tells how much money one needs to invest in the future
B)Is a lump sum
C)Can only be calculated manually
D)Indicates how much money needs to be invested today
E)None of these

Question 39

Abby Mia wants to know how much must be deposited in her local bank today so that she will receive yearly payments of $18,000 for 20 years at a current rate of 9% compounded annually. (Use the tables in the handbook.)

A)$1,085.82
B)$1,463.13
C)$164,313
D)$163,313
E)None of these

Question 40

Jones Co. borrowed money that is to be repaid in 12 years. So that the loan will be paid back at end of the 12^th year, the company invests $8,000 at end of each year at 5% compounded annually. The amount of the original loan was (use the tables in the handbook):

A)$127,336.80
B)$70,905.60
C)$127,636.80
D)$70,950.60
E)None of these

Question 41

At the beginning of each year for 14 years, Sherry Kardell invested $400 that earns 10% annually. What is the future value of Sherry's account in 14 years?

A)$12,309
B)$13,100
C)$14,000
D)$12,709
E)None of these

Question 42

Bram Johnson invests $500 at the end of each quarter for 10 years. The account earns 12% interest annually. What is the value of the account at the end of 10 years?

A)$37,700
B)$37,700.60
C)$37,000
D)$3,700
E)None of these

Question 43

Connie made deposits of $2000 at the beginning of each year for four years. The rate she earned is 5% annually. What is the value of Connie's account in four years?

A)$11,051.00
B)$8,260.20
C)$8,260.00
D)$9,051.20
E)None of these

Question 44

Jorgen Grace made deposits of $250 at the end of each year for 12 years. The rate received was 6% annually. What is the value of the investment after 12 years?

A)$2,028
B)$3,000
C)$4,217.48
D)$4,200
E)None of these

Question 45

Scott deposits $5,000 at the end of each year into an account for five years. Assuming 6% interest annually, what is the value of his account in five years?

A)$67,060
B)$21,873
C)$30,100
D)$28,185.50
E)None of these