Reference no: EM131499661

1. Which one of the following statements is correct?

Most loans are a form of a perpetuity.

Perpetuities are finite but annuities are not.

A perpetuity comprised of $200 monthly payments is worth less than an annuity comprised of $200 monthly payments, given an interest rate of 10 percent, compounded monthly.

The present value of a perpetuity cannot be computed, but the future value can.

An ordinary annuity is worth less than an annuity due given equal annual cash flows for 5 years at 5 percent interest, compounded annually.

2. Which of the following statements indicates the correct relationship between present value and future value interest factors?

The future value factor is the exponent of the present value factor.

The present value factor is the exponent of the future value factor.

The present value and future value factors are equal to each other.

The factors are reciprocals of each other.

There is no relationship between these two factors.

3. Bob is going to receive $5,000 bonus in 1 year. He wants to know the present value of it. The interest rate he used in his calculation is called _____________.

effective rate

simple rate

current yield

discount rate

compound rate

4. For a discount bond, we should see its __________.

I. market price = call price

II. market price < face value

III. coupon rate < yield-to-maturity

IV. current yield = yield-to-maturity

I and II only

I, II, and III only

II and III only

II, III, and IV only

II and IV only