To Compute the Present or Future Value of an Annuity

question 66

Multiple Choice

To compute the present or future value of an annuity due, one computes the value of an ordinary annuity and then

• A) multiplies it by (1 + i).
• B) divides it by (1 + i).
• C) multiplies it by (1 − i).
• D) divides it by (1 − i).

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Definitions:

Present Value

The immediate value of an upcoming amount of money or a series of cash inflows, based on a set rate of return.

Usury Law

Legislation that sets maximum interest rates that can be charged on loans to prevent exploitation and excessive interest charges.

Shortage

A market condition where the demand for a product exceeds its supply, often leading to higher prices.

Loanable Funds

The total funds available within an economy for borrowing, including savings and other investments.