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Questions and Answers
What is the primary purpose of calculating the present value of an annuity?
What is the primary purpose of calculating the present value of an annuity?
- To calculate the installment amount of a loan or debt (correct)
- To determine the credit score of the borrower
- To find the total amount borrowed
- To determine the total interest paid over the life of the loan
What does the symbol 'x' represent in the present value of an annuity formula?
What does the symbol 'x' represent in the present value of an annuity formula?
- Interest rate per period
- Number of periods
- Present value of the loan or annuity
- Payment amount per period (correct)
What is the effect of an increase in the interest rate per period on the present value of an annuity?
What is the effect of an increase in the interest rate per period on the present value of an annuity?
- It increases the present value
- It has no effect on the present value
- It is unpredictable
- It decreases the present value (correct)
What is the present value of an annuity formula used for?
What is the present value of an annuity formula used for?
What would be the effect on the present value of an annuity if the number of periods were to increase?
What would be the effect on the present value of an annuity if the number of periods were to increase?
If the interest rate per period increases, what happens to the value of the expression (1 + i)^(-n) in the present value of an annuity formula?
If the interest rate per period increases, what happens to the value of the expression (1 + i)^(-n) in the present value of an annuity formula?
What is the relationship between the payment amount per period (x) and the present value of the loan or annuity (P)?
What is the relationship between the payment amount per period (x) and the present value of the loan or annuity (P)?
If the number of periods (n) increases, what happens to the value of the expression [1 - (1 + i)^(-n)]/i in the present value of an annuity formula?
If the number of periods (n) increases, what happens to the value of the expression [1 - (1 + i)^(-n)]/i in the present value of an annuity formula?
What happens to the present value of an annuity if the payment amount per period (x) is reduced, but the interest rate per period (i) and number of periods (n) remain constant?
What happens to the present value of an annuity if the payment amount per period (x) is reduced, but the interest rate per period (i) and number of periods (n) remain constant?
What is the effect of an increase in the number of periods (n) on the present value of an annuity, assuming the payment amount per period (x) and interest rate per period (i) remain constant?
What is the effect of an increase in the number of periods (n) on the present value of an annuity, assuming the payment amount per period (x) and interest rate per period (i) remain constant?
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