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7 Future value of annuities There are two categories of cash flows single cash flows referred to as lump sums and annuities Based on your understanding of annuities answer the following questions Which of the following statements about annuities are true Check all that apply A perpetuity is a series of equal payments made at fixed intervals that continue infinitely and can be thought of as an infinite annuity When equal payments are made at the end of each period for a certain time period they are treated as ordinary annuities An ordinary annuity of equal time earns less interest than an annuity due When equal payments are made at the end of each period for a certain time period they are treated as an annuity due Which of the following is an example of an annuity An investment in a certificate of deposit CD A lump sum ayment made to a life insurance company that promises to make a series of equal payments later for some Ashley has a large and growing collection of animated movies She wants to replace her old television with a new LCD model so she has started saving for it At the end of each year she deposits 1 060 in her bank account which pays her 7 interest annually Ashley wants to keep saving for two years and then buy the newest LCD model that is available Ashley s savings are an example of an annuity How much money will Ashley have to buy a new LCD TV at the end of two years 1 865 07 of time O 2 194 20 O 2 347 79 O 1 916 50 by the end of two

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