1. Which of the following are characteristics of a perpetuity? Check all that apply.

The current value of a perpetuity is based more on the discounted value of its nearer (in time) cash flows and less by the discounted value of its more distant (in the future) cash flows.

A perpetuity is a stream of unequal cash flows.

The value of a perpetuity is equal to the sum of the present value of its expected future cash flows.

A perpetuity is a stream of regularly timed, equal cash flows that continues forever.

2. A local banks advertising reads: Give us $15,000 today, and well pay you $5,200 every year forever. If you plan to live forever, what annual interest rate will you earn on your deposit?

27.74%

48.54%

41.60%

34.67%

3. Frances has a large and growing collection of animated movies. She wants to replace her old television with a new LCD model, so she has started saving for it. At the end of each year, she deposits $1,100 in her bank account, which pays her 12% interest annually. Frances wants to keep saving for 4 years and then buy the newest LCD model that is available. Francess savings are an example of an annuity. How much money will Frances have to buy a new LCD TV at the end of 4 years, rounded to the nearest whole dollar?

$5,257

$4,468

$5,888

$7,097

4. If Frances deposits the money at the beginning of every year and everything else remains the same, she will save by the end of 4 years?