Understanding Annuities and Future Value

What is an annuity?

• A type of investment that pays a fixed amount of money at regular intervals.

• A one-time payment made to an individual or organisation.

• A financial instrument that decreases in value over time.

• A savings account with a variable interest rate.

Which of the following best defines the future value (FV)?

• The current worth of a sum of money.

• The amount of money that will be received in the future, including interest.

• The interest rate applied to a sum of money.

• The amount of money invested initially.

What is the purpose of a Future Value (FV) table?

• To calculate the present value of an investment.

• To determine the future value of an investment based on different interest rates and time periods.

• To track daily expenses.

• To compare different types of investments.

If you want to find the future value of an investment using an FV table, which two key pieces of information do you need?

• The initial investment amount and the inflation rate.

• The interest rate and the time period.

• The current market value and the investment type.

• The tax rate and the investment duration.

What does the term "compounding" refer to in the context of future value?

• The process of earning interest on both the initial principal and the accumulated interest from previous periods.

• The process of subtracting interest from the principal.

• The process of dividing the principal by the interest rate.

• The process of converting currency.

Which of the following is NOT a characteristic of an annuity?

• Regular payments.

• Fixed interest rate.

• Payments continue indefinitely.

• Payments occur at regular intervals.

How does the frequency of compounding affect the future value of an investment?

• It decreases the future value.

• It has no effect on the future value.

• It only affects the present value.

• It increases the future value as the frequency of compounding increases.

What is the impact of a higher interest rate on the future value of a single sum investment?

• It decreases the future value.

• It increases the future value.

• It only affects the present value.

• It has no impact on the future value.

Which of the following factors does NOT affect the future value of an investment?

• The interest rate.

• The frequency of compounding.

• The time period of the investment.

• The type of currency used.

Which of the following statements is true about the present value (PV) and future value (FV) of money?

• FV is the current worth of a sum of money.

• PV is the value of a sum of money today, while FV is its value at a future date.

• PV and FV are always equal.

• PV is always greater than FV.