You Are Considering Two Annuities, Both of Which Make Total

question 48

Essay

You are considering two annuities, both of which make total annuity payments of $10,000 over their
life. Which would be worth more today: annuity A, which pays $1,000 at the end of each year for the
next 10 years, or annuity B, which pays $775 at the end of the first year, but the annuity payment
grows by $50 each year, reaching $1,225 at the end of year 10? Are there any circumstances in
which the two would be equal? Explain.

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Definitions:

Conformity

The process of aligning one's attitudes, beliefs, and actions with the norms, policies, or expectations of a group or society.

Mood Contagion

The phenomenon where emotional states are transferred from one person to another, often unconsciously.

Group Polarization

A social psychological phenomenon where discussions within a group lead to an exaggeration of the group's initial leanings, making their opinions more extreme.

Social Loafing

The tendency of individuals to exert less effort when working in a group than when working alone.