CA Foundation Exam > CA Foundation Questions > Which of the following concepts is incorrect?...
Start Learning for Free
Which of the following concepts is incorrect?
- a)An ordinary annuity has payments at the end of each year.
- b)An annuity due has payments at the beginning of each year.
- c)A perpetuity is considered a perpetual annuity.
- d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.
Correct answer is option 'D'. Can you explain this answer?
| FREE This question is part of | Download PDF Attempt this Test |
Verified Answer
Which of the following concepts is incorrect?a)An ordinary annuity has...
Because The annuity due has a greater PV because it pays one year earlier than ordinary annuity.
Most Upvoted Answer
Which of the following concepts is incorrect?a)An ordinary annuity has...
Incorrect Concept: An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate, and time period.
Explanation:
An annuity is a series of equal cash flows received or paid at equal intervals of time. There are two types of annuities, ordinary annuity and annuity due.
- Ordinary Annuity: In an ordinary annuity, the periodic payments are made at the end of each period, such as the end of each year or the end of each month.
- Annuity Due: In an annuity due, the periodic payments are made at the beginning of each period, such as the beginning of each year or the beginning of each month.
Perpetuity is an annuity that pays an infinite stream of cash flows that never ends.
Now, let's consider the given concept:
An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate, and time period.
This concept is incorrect. The PV of an annuity is the present value of all the future cash flows of the annuity. The PV of an annuity due is always greater than the PV of an ordinary annuity, given that they both have the same periodic payments, discount rate, and time period. This is because the cash flows of an annuity due are received one period earlier than the cash flows of an ordinary annuity. Therefore, the cash flows of an annuity due have more time to earn interest and thus have a higher present value.
In summary, the correct concept is:
- The PV of an annuity due is always greater than the PV of an ordinary annuity, given that they both have the same periodic payments, discount rate, and time period.
Explanation:
An annuity is a series of equal cash flows received or paid at equal intervals of time. There are two types of annuities, ordinary annuity and annuity due.
- Ordinary Annuity: In an ordinary annuity, the periodic payments are made at the end of each period, such as the end of each year or the end of each month.
- Annuity Due: In an annuity due, the periodic payments are made at the beginning of each period, such as the beginning of each year or the beginning of each month.
Perpetuity is an annuity that pays an infinite stream of cash flows that never ends.
Now, let's consider the given concept:
An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate, and time period.
This concept is incorrect. The PV of an annuity is the present value of all the future cash flows of the annuity. The PV of an annuity due is always greater than the PV of an ordinary annuity, given that they both have the same periodic payments, discount rate, and time period. This is because the cash flows of an annuity due are received one period earlier than the cash flows of an ordinary annuity. Therefore, the cash flows of an annuity due have more time to earn interest and thus have a higher present value.
In summary, the correct concept is:
- The PV of an annuity due is always greater than the PV of an ordinary annuity, given that they both have the same periodic payments, discount rate, and time period.
Attention CA Foundation Students!
To make sure you are not studying endlessly, EduRev has designed CA Foundation study material, with Structured Courses, Videos, & Test Series. Plus get personalized analysis, doubt solving and improvement plans to achieve a great score in CA Foundation.
|
Explore Courses for CA Foundation exam
|
|
Similar CA Foundation Doubts
Top Courses for CA FoundationView all
Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer?
Question Description
Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer?.
Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer?.
Solutions for Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer? in English & in Hindi are available as part of our courses for CA Foundation.
Download more important topics, notes, lectures and mock test series for CA Foundation Exam by signing up for free.
Here you can find the meaning of Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer? defined & explained in the simplest way possible. Besides giving the explanation of
Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer?, a detailed solution for Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer? has been provided alongside types of Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer? theory, EduRev gives you an
ample number of questions to practice Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer? tests, examples and also practice CA Foundation tests.
|
|
Explore Courses for CA Foundation exam
|
|
Suggested Free Tests
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
|
© EduRev
|
Education Revolution
|
Follow Us
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup