Suppose You Are Evaluating Two Annuities

question 291

Multiple Choice

Suppose you are evaluating two annuities. They are identical in every way, except that one is an ordinary annuity and one is an annuity due. Assuming an interest rate of 10%, which of the following is true?

• A) The ordinary annuity must have a higher present value than the annuity due.
• B) The annuity due must have the same present value as the ordinary annuity.
• C) The regular annuity must have a lower future value than the annuity due.
• D) The two annuities will differ in present value by the amount of exactly one of the annuity payments.
• E) The annuity due will be larger than the regular annuity by an amount equal to the present value of the last annuity payment.

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Definitions:

1534

A year notable for events like the enactment of the Act of Supremacy, which established King Henry VIII as the head of the Church of England.

Church of England

The primary state church of England, established in the 16th century by King Henry VIII's separation from the Roman Catholic Church.

Dutch Cleric

A religious leader or clergyman from the Netherlands.

Morality

Principles concerning the distinction between right and wrong or good and bad behavior, often influenced by cultural, religious, or personal values.