FM FM Annuities and Loan Amortization

Question 1

What is the present value annuity factor a(5, 6%) for an ordinary annuity at an annual effective interest rate of 6% for 5 years?

Accepted Answer

4.2124

Answer

4.4651

Answer

3.9927

Answer

5.6371

Question 2

An annuity-due differs from an ordinary annuity (annuity-immediate) in that its payments occur at:

Accepted Answer

The beginning of each period

Answer

The end of each period

Answer

Random intervals within each period

Answer

Annual intervals only, regardless of compounding frequency

Question 3

A perpetuity-immediate pays $600 per year indefinitely. At an annual effective interest rate of 5%, what is the present value?

Accepted Answer

$12,000

Answer

$10,200

Answer

$11,429

Answer

$9,800

Question 4

Which formula correctly represents the accumulated value (future value) of an ordinary annuity of 1 per period for n periods at interest rate i?

Accepted Answer

s(n,i) = ((1+i)^n - 1) / i

Answer

a(n,i) = (1 - (1+i)^-n) / i

Answer

s(n,i) = ((1+i)^n - 1) / d

Answer

ä(n,i) = (1 - (1+i)^-n) / d

Question 5

A loan of $20,000 is repaid with equal annual payments over 10 years at an annual effective interest rate of 5%. What is the annual payment?

Accepted Answer

$2,590.09

Answer

$2,312.20

Answer

$2,800.00

Answer

$2,443.67

Question 6

In an amortization schedule for a fixed-payment loan, how does the principal component of each payment change over time?

Accepted Answer

Increases throughout the loan term

Answer

Decreases throughout the loan term

Answer

Remains constant each period

Answer

Fluctuates based on remaining interest accrued

Question 7

Using the prospective method, the outstanding loan balance at any point in time equals:

Accepted Answer

The present value of all remaining future payments

Answer

The original loan amount minus cumulative principal paid

Answer

The future value of all payments already made

Answer

The original loan amount plus total accrued interest