Question 1

A sinking fund:

Accepted Answer

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 
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 C

Question 2

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):

Accepted Answer

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

Question 3

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

Accepted Answer

A) True 
 B)False  False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

A contingent annuity has a fixed amount of payments.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

There is only one class of annuities.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Annuities can be done manually or by computer.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

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 
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 12

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?

Accepted Answer

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

Question 13

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.)

Accepted Answer

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

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

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.)

Accepted Answer

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

Question 16

Annuities certain have a specific stated number of payments.

Accepted Answer

A) True 
 B)False

Question 17

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.)

Accepted Answer

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

Question 18

An annuity is:

Accepted Answer

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 
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 19

The present value of an ordinary annuity:

Accepted Answer

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 
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 20

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

Accepted Answer

A) True 
 B)False

Exam 13: Annuities and Sinking Funds

A sinking fund:

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):

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

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

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

A contingent annuity has a fixed amount of payments.

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

There is only one class of annuities.

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

Annuities can be done manually or by computer.

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

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?

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.)

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.

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.)

Annuities certain have a specific stated number of payments.

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.)

An annuity is:

The present value of an ordinary annuity:

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

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