1)If r is the discount rate, the formula [1/(1 + r)] refers to the  A

1)If r is the discount rate, the formula [1/(1 + r)] refers to the

 A. future value interest factor associated with r for one period.

2. present value of some future cash flow.
3. present value interest factor associated with r for one period.
4. future value interest factor for an annuity with a duration of r periods.

2. All other things being equal, as the time period for receiving an annuity lengthens,

A. the related present value factors increase.

2. the related present value factors decrease.
3. the related present value factors remain constant.
4. it is impossible to tell what happens to present value factors from the information given.

3. Which of the following indicates that the first cash flow is at the end of a period?

Ordinary annuity     Annuity due

1. yes              no
2. yes              yes
3. no               yes
4. no               no

4. Assume that X represents a sum of money that Bill has available to invest in a project that will yield a return of r. In the formula Y = X(1 + r), Y represents the

A. future value of X in one period.

2. future value interest factor associated with r.
3. present value of X.
4. present value interest factor associated with r.

5. Alan Arnold has just turned 65. He has $100,000 to invest in a retirement annuity. One investment company has offered to pay Alan $10,000 per year for 15 years (payments to begin in one year) in exchange for an immediate $100,000 payment. If Alan accepts the offer from the investment company, what is his expected return on the $100,000 investment (assume a return that is compounded annually)? Present value tables or a financial calculator are required.

1. between 5 and 6 percent
2. between 6 and 7 percent
3. between 7 and 8 percent
4. between 8 and 9 percent