1. Which of the following statements is incorrect?

a. An ordinary annuity has payments at the end of each year.

b. An annuity due has payments at the beginning of each year.

c. A perpetuity is considered a perpetual annuity.

d. An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate, and time period.

2. Jan plans to invest $2,000 in an equity fund every year end beginning this year. The expected annual return on the fund is 15 percent. How much would she expect to have at the end of 20 years?

a. $237,620

b. $176,424

c. $204,887

d. $178,424

3. Jan plans to invest $2,000 in an equity fund every year end beginning this year. The expected annual return on the fund is 15 percent. She plans to invest for 20 years. What is the present value of Jan’s investments?

a. $12,625

b. $12,519

c. $14,396

d. $12,396

4. What is the present value of perpetuity with an annual year-end payment of $1,500 and expected annual rate of return equal to 12 percent?

a. $14,000

b. $13,500

c. $11,400

d. $12,500

5. What is the present value of perpetuity with an annual payment of $1,500 if the first payment is due immediately? The expected annual rate of return is equal to 12 percent.

a. $14,000

b. $13,500

c. $11,400

d. $12,500

6. Ten years ago you borrowed $250,000. The term of the loan was 20 years and required monthly payments of $2,752.72. The interest rate on the loan was 12 percent compounded monthly. You have just made the 120th payment. What is the principal outstanding?

a. $200,000

b. $196,697

c. $191,866

d. $125,000

7. Which of the following statements is correct?

a. The future value of perpetuity cannot be computed.

b. The future value of perpetuity can be computed.

c. The present value of perpetuity cannot be computed.

d. The present value of an annuity cannot be computed.