You Are Considering Two Equally Risky Annuities,each of Which Pays

question 21

Multiple Choice

You are considering two equally risky annuities,each of which pays $5,000 per year for 10 years.Investment ORD is an ordinary (or deferred) annuity,while Investment DUE is an annuity due.Which of the following statements is CORRECT?

• A) A rational investor would be willing to pay more for DUE than for ORD,so their market prices should differ.
• B) The present value of DUE exceeds the present value of ORD,while the future value of DUE is less than the future value of ORD.
• C) The present value of ORD exceeds the present value of DUE,and the future value of ORD also exceeds the future value of DUE.
• D) The present value of ORD exceeds the present value of DUE,while the future value of DUE exceeds the future value of ORD.
• E) If the going rate of interest decreases from 10% to 0%,the difference between the present value of ORD and the present value of DUE would remain constant.

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Definitions:

Black Panther Party

A revolutionary organization founded in 1966 that aimed to promote Black empowerment and protect African American communities from police brutality, using both social programs and armed self-defense.

1966

A year notable for various historical events worldwide, including cultural movements, political changes, and advancements in science and technology.

Oakland, California

A city in the San Francisco Bay Area of California, known for its significant cultural diversity and history of political activism.

Kwame Touré

Previously known as Stokely Carmichael, a prominent figure in the civil rights movement who later became a leader in the Black Power movement.