TVM Quiz

Compound interest is earned when interest paid in the first period is added to the principal, and this sum is multiplied by the interest rate to earn the new interest in the second period, which will then be added to the previous sum.

• True

• False

The present value of an investment is the value tomorrow of its future cash flows.

• True

• False

The present value of a future sum is always more than the sum's future value.

• True

• False

An annuity is a series of equal cash payments for a stated number of years.

• True

• False

In an ordinary annuity, payment occurs at the end of each period.

• True

• False

An annuity due is an ordinary annuity that has an outstanding balance.

• True

• False

The cash flow of an ordinary annuity occurs at __________

• the beginning of each period.

• the end of each period.

• the middle of each period.

• the beginning and middle of each period.

When an ordinary annuity is identical to an annuity due, the future value is __________

• greater.

• less.

• twice the amount.

• half the amount.

Assume that money has a time value. Which of the following statements is true?

• An annuity will always have a greater present value than the present value of a perpetuity that has periodic payments of the same amount as the annuity.

• The present value of a single sum will always be greater than its future value.

• An annuity due will always have a greater future value than an ordinary annuity.

Mazni has decided to invest RM100 in a saving account paying 12% interest for two years. How much will she earn?

Given:

FVIF 12%, 2 years = 1.2544

FVIFA 12%, 2 years = 2.1200

PVIF 12%, 2 years = 0.7972

PVIFA 12%, 2 years = 1.6901

• RM125.44

• RM138.90

• RM135.76

• RM128.86