Chapter 3: The Time Value of Money MCQs solved

 Multiple-Choice Quiz

Chapter 3:   The Time Value of Money

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1. You want to buy an ordinary annuity that will pay you $4,000 a year for the next 20 years. You expect annual interest rates will be 8 percent over that time period. The maximum price you would be willing to pay for the annuity is closest to

$32,000.

$39,272.             Correct!

 PVA = $4,000 (PVIFA at 8% for 20 periods)

 PVA = $4,000 (9.818) = $39,272

$40,000.

$80,000.