Mike Carlson will receive $12,000 a year from the end of the third year to the end of the 12thyear (10 payments). The discount rate is 10%

Mike Carlson will receive $12,000 a year from the end of the third year to the end of the 12thyear (10 payments). The discount rate is 10%. The present value today of this deferred annuity is:

A. $61, 450
B. $42,185
C. $55,379
D. $60,909

PV_A = A ´PV_IFA (App. D: 10%, 10 periods)
= $12,000 x 6.145 = $73,740
(App. B: 10%, 2 periods)
= $73,740 x .826 = $60,909

The shorter the length of time between a present value and its corresponding future value,

A. the lower the present value, relative to the future value.
B. the higher the present value, relative to the future value.
C. the higher the interest rate used in the present-valuation.
D. none of these.

 A dollar today is worth more than a dollar to be received in the future because

A. risk of nonpayment in the future.
B. the dollar can be invested today and earn interest.
C. inflation will reduce purchasing power of a future dollar.
D. None of these.

The higher the rate used in determining the future value of a $1 annuity,

A. the smaller the future value at the end of the period.
B. the greater the future value at the end of a period.
C. the greater the present value at the beginning of a period.
D. none of these - the interest has no effect on the future value of an annuity.