Which One of the Following Is Correct Concerning Ordinary Annuities

question 212

Multiple Choice

Which one of the following is correct concerning ordinary annuities and annuities due?

• A) An ordinary annuity will have a larger present value than an annuity due given that the annuities are otherwise identical.
• B) An annuity due will have a larger future value than an ordinary annuity given that the annuities are otherwise identical.
• C) An annuity due applies only to equal payments made in annual increments.
• D) The majority of annuities are annuities due.
• E) An ordinary annuity is one where the payment occurs at the beginning of the period.

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Definitions:

Risk-Free Profits

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Interest Rate Parity

A financial theory stating that the difference in interest rates between two countries will be offset by changes in the exchange rate between their currencies.

Covered Interest Arbitrage

The practice of exploiting the interest rate differential between two countries while hedging against exchange rate risk using forward contracts.

Portfolio's Beta

A measurement that indicates the volatility, or systematic risk, of a portfolio relative to the overall market.