# The annuity due factor equals one plus the ordinary annuity factor for n–1 periods. - 15808

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If an annuity due and an ordinary annuity have the same number of equal payments and the same interest rates, then

the present value of the annuity due is less than the present value of the ordinary annuity.

the future value of the annuity due is equal to the future value of the ordinary annuity.

the present value of the annuity due is greater than the present value of the ordinary annuity.

the future value of the annuity due is less than the future value of the ordinary annuity.

A series of equal receipts at equal intervals of time when each receipt is received at the beginning of each time period is called an

ordinary annuity.

unearned receipt.

annuity due.

annuity in arrears.

Stemway requires a new manufacturing facility. Management found three locations; all of which would provide needed capacity, the only difference is the price. Location A may be purchased for \$500,000. Location B may be acquired with a down payment of \$100,000 and annual payments at the end of each of the next twenty years of \$50,000. Location C requires \$40,000 payments at the beginning of each of the next twenty-five years. Assuming Stemway's borrowing costs are 8% per annum, which option is the least costly to the company?

Location B.

Location A and Location B.

Location A.

Location C.

Pearson Corporation makes an investment today (January 1, 2012). They will receive \$6,000 every December 31st for the next six years (2012 – 2017). If Pearson wants to earn 12% on the investment, what is the most they should invest on January 1, 2012?

\$54,534.

\$24,668.

\$27,629.

\$48,691.

Ziggy is considering purchasing a new car. The cash purchase price for the car is \$33,600. What is the annual interest rate if Ziggy is required to make annual payments of \$7,800 at the end of the next five years?

5%.

6%.

4%.

7%

Jeremy is in the process of purchasing a car. The list price of the car is \$36,000. If Jeremy pays cash for the car, the dealer will reduce the price by 10%. Otherwise, the dealer will provide financing where Jeremy must pay \$7,706 at the end of each of the next five years. Compute the effective interest rate to the nearest percent that Jeremy would pay if he chooses to make the five annual payments?

7%.

8%.

5%.

6%.

Given below are the present value factors for \$1.00 discounted at 10% for one to five periods. Interest compounded annually is 10%.
Periods    Present Value of \$1
Discounted at 10% per Period
1    1.080
1    0.909
2    0.826
3    0.751
4    0.683
5    0.621

What amount should an individual have in a bank account today before withdrawal if \$5,000 is needed each year for four years with the first withdrawal to be made today and each subsequent withdrawal at one-year intervals? (The balance in the bank account should be zero after the fourth withdrawal.)

(\$5,000 × 0.909) + (\$5,000 × 0.826) + (\$5,000 × 0.751) + (\$5,000 × 0.683)

\$5,000 + (\$5,000 × 0.909) + (\$5,000 × 0.826) + (\$5,000 × 0.751)

\$5,000 ÷ 0.683 × 4

\$5,000 ÷ 0.909 × 4

Which table has a factor of 1.00000 for 1 period at every interest rate?

Present value of 1

Present value of an ordinary annuity of 1

Future value of an ordinary annuity of 1

Future value of 1

John won a lottery that will pay him \$150,000 at the end of each of the next twenty years. Assuming an appropriate interest rate is 8% compounded annually, what is the present value of this amount?

\$1,590,540.

\$32,183.

\$1,472,723.

\$6,864,294.

On June 1, 2012, Pitts Company sold some equipment to Gannon Company. The two companies entered into an installment sales contract at a rate of 8%. The contract required 8 equal annual payments with the first payment due on June 1, 2012. What type of compound interest table is appropriate for this situation?

Future amount of an ordinary annuity of 1 table.

Present value of an ordinary annuity of 1 table.

Present value of an annuity due of 1 table.

Future amount of 1 table.

Jeremy Leasing purchases and then leases small aircraft to interested parties. The company is currently determining the required rental for a small aircraft that cost them \$600,000. If the lease is for twenty years and annual lease payments are required to be made at the end of each year, what will be the annual rental if Jeremy wants to earn a return of 10%?

\$30,314.

\$64,070.

\$70,476.

\$10,476.

Garretson Corporation will receive \$8,000 today (January 1, 2012), and also on each January 1st for the next five years (2013 – 2017). What is the present value of the six \$8,000 receipts, assuming a 12% interest rate?

\$64,922.

\$32,891.

\$36,838.

\$72,712.

Jonas won a lottery that will pay him \$200,000 at the end of each of the next twenty years. Zebra Finance has offered to purchase the payment stream for \$2,718,000. What interest rate (to the nearest percent) was used to determine the amount of the payment?

7%.

5%.

4%.

6%.

Which statement is true?

The factor for the future value of an annuity due is found by subtracting 1.00000 from the ordinary annuity table value for one more period.

The factor for the present value of an annuity due is found by multiplying the ordinary annuity table value by one minus the interest rate.

The factor for the future value of an annuity due is found by multiplying the ordinary annuity table value by one plus the interest rate.

The factor for the present value of an annuity due is found by adding 1.00000 to the ordinary annuity table value for one less period.

What is the relationship between the present value factor of an ordinary annuity and the present value factor of an annuity due for the same interest rate?

The ordinary annuity factor is not related to the annuity due factor.

The annuity due factor equals the ordinary annuity factor for n+1 periods minus one.

The annuity due factor equals one plus the ordinary annuity factor for n–1 periods.

The ordinary annuity factor equals one plus the annuity due factor for n+1 periods.

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