IC28 Mock Test Sample 9

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Q1. In Example 7, the required amount of the annuity due is approximately:

a) Rs. 11,547.37
b) Rs. 6,000
c) Rs. 5,000
d) Rs. 3,600

Q2. In Example 8, a bond of Rs. 1000 at 8% half-yearly to yield 9% involves:

a) PV of Rs. 40 every 6 months for 10 years
b) PV of Rs. 80 p.a.
c) Just Rs. 1000
d) Accumulated value of all coupons

Q3. In Example 8(i), the bond price to yield 9% p.a. is approximately:

a) Rs. 947.12
b) Rs. 1000.00
c) Rs. 1080.00
d) Rs. 500.00

Q4. In Example 8(ii), the accumulated amount of interest received is:

a) Rs. 1242.20
b) Rs. 80 × 10
c) Rs. 1000
d) Rs. 500

Q5. When the rate of interest changes during the term of the annuity, valuation requires:

a) Using the average rate
b) Splitting the period and combining values
c) Ignoring rate change
d) Using the higher rate throughout

Q6. In the worked example with 8% for first 5 years then 9%, the first period uses:

a) 8% p.a.
b) 9% p.a.
c) Average of 8% and 9%
d) Effective compound rate

Q7. To bring point-B value back to point A, multiply by:

a) $v^5$ at 8% p.a.
b) $v^5$ at 9% p.a.
c) $(1+i)^5$
d) $v^{10}$

Q8. In the same example, total PV of immediate annuity at point A is:

a) 8.3605
b) 3.9927
c) 4.3678
d) 15.1929

Q9. The accumulated value at point C (end of year 15) of first 5 payments is obtained using:

a) $s_{\overline{5}|}$
b) $a_{\overline{5}|}$
c) Discount factor only
d) Always one rate

Q10. In the same problem, the desired accumulated value at C is:

a) 29.0813
b) 13.8884
c) 15.1929
d) 8.3605

Q11. In a decreasing annuity $(Da)_{\overline{n}|}$, the payment at the end of the $k^{th}$ year equals:

a) $k$
b) $n-k+1$
c) $1/k$
d) $n$

Q12. The present value of a decreasing immediate annuity involves:

a) $(1-v^n)/(i)$
b) $n a_{\overline{n}|}$
c) Increasing annuity formula
d) Discounting a perpetuity

Q13. The present value of a decreasing annuity due involves:

a) $n/d$
b) $n \cdot a_{\overline{n}|}$
c) $1/i^2$
d) $v^n$

Q14. The accumulated value formula $s_{\overline{n}|}$ represents:

a) Value at commencement
b) Value at the end of term
c) Deferred value only
d) Present value only

Q15. In bond valuation problems, coupons are generally treated as:

a) Deferred annuities
b) Immediate annuities
c) Perpetuities only
d) Lump sum payments only

Q16. In annuity calculations, $v$ generally denotes:

a) Rate of interest
b) Discount factor
c) Number of years
d) Accumulated amount

Q17. The notation $a_{\overline{n}|}$ represents:

a) Present value of immediate annuity
b) Accumulated value of annuity
c) Perpetuity value
d) Discounted perpetuity

Q18. The notation $s_{\overline{n}|}$ represents:

a) Deferred annuity
b) Present value
c) Accumulated value of annuity
d) Discount factor

Q19. An annuity due differs from an immediate annuity because payments are made:

a) At the end of each year
b) Twice a year
c) At the beginning of each period
d) After deferment only

Q20. In valuation of varying annuities, the general approach is:

a) Use only one formula
b) Ignore changing payments
c) Value each stream separately and combine
d) Use simple interest only

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