1.When payments are made at the beginning of each period, you will treat them as (a) a perpetuity (b) an ordinary annuity (c) an annuity due .

2.You are planning to put $3,500 in the bank at the end of each year for the next four years in hopes that you will have enough money for a down payment on a condo. If you are investing at an annual interest rate of 5%, youll have accumulated (a) $15026 (b)13786 (c)19795 (d)15085 at the end of four years.

3.

You decided to deposit your money in the bank at the beginning of the year instead of the end of the same year, but now you are making payments of $2,500 at an annual interest rate of 6%. How much money will you have available at the end of seven years?

(a)$15,026

(b)$22,244

(c)$19,795

(d)$20,983

4.

Perpetuities are also called annuities with an extended or unlimited life. Based on your understanding of perpetuities, answer the following questions.

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

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

(b)The value of a perpetuity cannot be determined.

(c)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.

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

5.

Your grandfather wants to establish a scholarship in his fathers name at a local university and has stipulated that you will administer it. As youve committed to fund a $25,000 scholarship every year beginning one year from tomorrow, youll want to set aside the money for the scholarship immediately. At tomorrows meeting with your grandfather and the banks representative, you will need to deposit (a)$409,091 (b)$454,545 (c) $636,363 (d)$363,636 (rounded to the nearest whole dollar) so that you can fund the scholarship forever, assuming that the account will earn 5.50% per annum every year.

6.

Oops! The bank representative just reported that he misquoted the available interest rate on the scholarships account. Your account should earn 3.50%. The amount of your required deposit should be revised to (a)$678,572 (b)$714,286 (c)$1,071,429 (d)$607,143 . This suggests there is (a) an inverse (b) a direct relationship between the interest rate earned on the account and the present value of the perpetuity.