Question

Question 37

Muriel would like to support the education of her favourite grand-nephew, Stephen, who plans to begin university in 3 years.

How much will Muriel have to invest today, at 4 percent, to be able to give Stephen $8,140 at the end of each year for 4 years? (Round answer to 2 decimal places, e.g. 125.12. Do not round your intermediate calculations.)

Question 31

Which of the following statements is incorrect?

An ordinary annuity has a greater PV than an annuity due if they both have the same periodic payments, discount rate, and time period.

An ordinary annuity has payments at the end of each year.

A perpetuity is considered a perpetual annuity.

An annuity due has payments at the beginning of each year.

Answer 1

Interest Rate = 4%

Time Period = 4 years

Annual Payment = $8,140

Calculating Amount invested today,

Using TVM calculation,

PV = [FV = 0, PMT = 8,140, N = 4, I = 0.04]

PV = $29,547.35

Amount Invested = $29,547.35

An ordinary annuity has a greater PV than an annuity due if they both have the same periodic payments, discount rate, and time period.

This statement is incorrect.