When calculating the present or future value of an annuity we assume:
A)The number of compoundings each year is independent of the payments per year.
B)The number of compoundings per year is equal to the number of payments per year.
C)The number of compoundings depends on the size of the payment.
D)The number of compoundings depends on the annual interest rate.

Question

Quizplus · Accepted Answer

The formula for calculating the present or future value of an annuity assumes that the number of compoundings per year is equal to the number of payments per year. This is because the formula is based on the concept of regular, periodic payments over a set period of time, which implies that both the number of payments and the number of compoundings should be the same.

When Calculating the Present or Future Value of an Annuity