Calculate the Difference in the Current Economic Values of the Following

question 1

Multiple Choice

Calculate the difference in the current economic values of the following two annuities: #1: Payments of $300 made at the end of every month for the next five years. #2: Payments of $200 made at the end of every month for the next 10 years. Use an interest rate of 14.4% compounded monthly for both annuities.

• A) Annuity #1 is worth $398 more than Annuity #2.
• B) Annuity #1 is worth $95 more than Annuity #2.
• C) The current economic values are within $10 of each other.
• D) Annuity #2 is worth $95 more than Annuity #1.
• E) Annuity #2 is worth $398 more than Annuity #1.

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Definitions:

Tournament Pay

A form of compensation in which the top performer (or performers) receives much higher rewards than do other competitors, even if the others perform at only a slightly lower level.

Compensating Differential

Additional payment or benefit given to an employee to offset or compensate for undesirable aspects of a job.

Base Pay

The initial rate of compensation that an employee receives before any bonuses, benefits, or raises are added.

Skill

The ability, coming from one's knowledge, practice, aptitude, etc., to do something well.