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.

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

A. When equal payments are made at the beginning of each period for a certain time period, they are treated as an annuity due.

B. When equal payments are made at the beginning of each period for a certain time period, they are treated as ordinary annuities.

C. Annuities are structured to provide fixed payments for a specified period of time.

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

2. Which of the following is an example of an annuity?

A. A lump-sum payment made to a life insurance company that promises to make a series of equal payments later for some period of time

B. An investment in a certificate of deposit (CD)

3. 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 $1,060 every year and plans to renovate her kitchen. She deposits the money in her savings account at the end of each year and earns 14% 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 seven years?

A. $4,545.60

B. $11,374.32

C. $12,966.73

D. $9,668.17

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