You Are Comparing Two Annuities with Equal Present Values

question 162

Multiple Choice

You are comparing two annuities with equal present values. The applicable discount rate is 4.5%. One annuity pays $2,000 each month for twenty years, starting today. How much does the second
Annuity pay each month for twenty years if it will pay the first payment one month from today?

• A) $2,007.50
• B) $2,008.75
• C) $2,009.00
• D) $2,009.50
• E) $2,010.00

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Definitions:

Lagrange Multiplier

A technique used in constrained optimization problems to find the maximum or minimum of a function subject to constraints.

Lambda

A symbol commonly used in mathematics and physics to represent wavelengths, eigenvalues, and decay constants, among other concepts.

Lagrange Multipliers

A strategy used in mathematical optimization to find the local maxima and minima of a function subject to equality constraints.

Constrained Optimization

The process of finding the maximum or minimum value of a function subject to certain constraints, common in economics to find the optimal resource allocation.