Assuming Equal Time Intervals Between the Payments and a Constant

question 62

Multiple Choice

Assuming equal time intervals between the payments and a constant rate of return,which of the following cash flow patterns represents an annuity? $\begin{array}{|l|c|c|c|c|c|c|}\hline & \text { Year 1 } & \underline{\text { Year 2 }} & \underline{\text { Year 3 }} & \underline{\text { Year 4 }} & \underline{\text { Year 5 }} & {\text { Year 6 }} \\\hline \text { A) } & \$ 1,000 & \$ 1,000 & \$ 1,000 & \$ 1,000 & \$ 1,000 & \$ 1,000 \\\hline \text { B) } & \$ 500 & \$-0- & \$ 500 & \$ 500 & \$ 500 & \$-0- \\\hline \text { C) } & \$ 100 & \$ 200 & \$ 300 & \$ 400 & \$ 500 & \$ 600 \\\hline\end{array}$

• A) A
• B) B
• C) C
• D) Any of the answers can represent an annuity.

Understand the difference between credit and debit card usage and their impact on personal finances.

Know the major financial institutions and their roles in the financial system.

Understand the basic functions and types of various financial institutions, including mutual funds, commercial banks, credit unions, and insurance companies.

Recognize the regulatory landscape of the financial industry, including key acts and their impact on banking practices.

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Definitions:

Forward Contract

An agreement to buy or sell an asset at a future date at a price agreed upon today, often used to hedge against price movements.

Spot Rates

The current market price at which a particular asset can be bought or sold for immediate delivery and payment.

Fair Value Hedge

A type of hedge that protects against changes in the fair value of an asset, liability, or an unrecognized firm commitment, often due to changes in interest rates or other market variables.

Forward Contract

A financial derivative that represents a customized agreement to buy or sell an asset at a predetermined future date and price.