a.
PV =
C
1
/(1 +
r
)
17.
An equalpayment home mortgage is an example of an annuity.
a.
True
18.
The rate of return is also called the:
i.
I) discount rate
ii.
II) hurdle rate
iii.
III) opportunity cost of capital
b.
All three
19.
The present value of a growing perpetuity, with cash flow
C1
occurring one year
from now, is given by: [
C
1
/(
r

g
)], where
r
>
g
.
a.
True
20.
The value of a fiveyear annuity is equal to the sum of two perpetuities. One
makes its first payment in year 1, and the other makes its first payment in year 6.
a.
False
21.
The calculation of compound interest assumes reinvestment of interest payments
at the given rate of return.
a.
True
22.
The rate of return on any perpetuity is equal to its cash flow multiplied by its
price.
a.
False