Multiple Choice
In the context of time value of money, what is the accumulation period for an immediate annuity?
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10. Time Value of Money
Time Value of Money Equations
Multiple Choice
The variables in a present value of an annuity problem include all of the following, except:
A
Interest rate per period (\(i\))
B
Periodic payment amount (\(PMT\))
C
Number of periods (\(n\))
D
Future value of a single sum (\(FV\))
Verified step by step guidance1
Understand the concept of the present value of an annuity. It is the current worth of a series of equal payments made at regular intervals, discounted at a specific interest rate.
Identify the key variables involved in the calculation of the present value of an annuity. These include: the interest rate per period (\(i\)), the periodic payment amount (\(PMT\)), and the number of periods (\(n\)).
Recognize that the future value of a single sum (\(FV\)) is not relevant to the calculation of the present value of an annuity. The future value pertains to a single lump sum, not a series of payments.
Review the formula for the present value of an annuity: \( PV = PMT \times \frac{1 - (1 + i)^{-n}}{i} \). Note that \(FV\) does not appear in this formula.
Conclude that the correct answer is 'Future value of a single sum (\(FV\))' because it is not a variable used in the present value of an annuity calculation.
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