7. Future value of annuities

There are two categories of cash flows: single cash flows, referred to as lump sums, and annuities. Based on your understanding of annuities, answer the following questions.

Which of the following statements about annuities are true?Check all that apply.

An annuity due is an annuity that makes a payment at the end of each period for a certain time period.

An annuity due earns more interest than an ordinary annuity of equal time.

A perpetuity is a constant, infinite stream of equal cash flows that can be thought of as an infinite annuity.

Ordinary annuities make fixed payments at the end of each period for a certain time period.

Which of the following is an example of an annuity?

A fund that invests in technology companies and distributes quarterly dividends for two out of four quarters per year but not always the same quarters

A retirement fund set up to pay a series of regular payments

Katie had a high monthly food bill before she decided to cook at home every day in order to reduce her expenses. She starts to save $1,410 every year and plans to renovate her kitchen. She deposits the money in her savings account at the end of each year and earns 5% annual interest. Katies savings are an example of an annuity. If Katie decides to renovate her kitchen, how much would she have in her savings account at the end of eight years?

$11,444.60

$13,464.24

$9,113.13

$14,137.46

If Katie deposits the money at the beginningof every year and everything else remains the same, she will save by the end of eight years.