Suppose You Are Evaluating Two Annuities

question 406

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:

Months of Age

A measurement of time used to denote the age of infants and young children by counting the number of months since birth.

Object Manipulation

The skill of using the hands and fingers to manipulate, move, control, or use objects effectively.

Cognition

Acquiring knowledge and insight through the mental processes of thinking, experiencing, and sensory engagement.

Examine Detail

The process of inspecting or scrutinizing something closely in order to observe or analyze its components.