Multiple choice

1. You would like to have enough money saved to receive an $80,000 per year perpetuity after retirement so that you and your family can lead a good life. How much would you need to save in your retirement fund to achieve this goal (assume that the perpetuity payments starts on the day of retirement. The interest rate is 10%)?  

a. $1,500,000 

b. $880,000 

c. $800,000 

d. None of the above 

2. An annuity is defined as  

a. Equal cash flows at equal intervals of time for a specified period of time 

b. Equal cash flows at equal intervals of time forever 

c. Unequal cash flows at equal intervals of time forever 

d. None of the above 

3. If you receive $1,000 payment at the end each year for the next five years, what type of cash flow do you have?  

a. Uneven cash flow stream 

b. An annuity 

c. An annuity due 

d. None of the above 

4. If the three-year present value annuity factor is 2.673 and two-year present value annuity factor is 1.833, what is the present value of $1 received at the end of the 3 years?  

a. $1.1905 

b. $0.84 

c. $0.89 

d. None of the above