The Present Value of a Four-Year Ordinary Annuity for Which

question 56

True/False

The present value of a four-year ordinary annuity for which the first payment is deferred for five years (not received until year six) is equal to the present value of a nine-year ordinary annuity minus the present value of a five-year ordinary annuity.

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Definitions:

Zero-coupon Bond

A bond that does not make periodic interest payments during its life and is instead sold at a deep discount from its face value, with the full face value being paid at maturity.

Yield To Maturity

The cumulative income projected from a bond, provided it is retained till its expiration, factoring in both the interest disbursements and principal reimbursement.

Rate Of Return

The gain or loss on an investment over a specified time period, expressed as a percentage of the investment's cost.

Par Value

The face value of a bond or stock, which is the amount paid back to the bondholder at maturity.