Suppose Someone Offered You Your Choice of Two Equally Risky

question 59

Multiple Choice

Suppose someone offered you your choice of two equally risky annuities, each paying R5,000 per year for 5 years.One is an annuity due, while the other is a regular (or deferred) annuity.If you are a rational wealth-maximising investor which annuity would you choose?

• A) The annuity due.
• B) The deferred annuity.
• C) Either one, because as the problem is set up, they have the same present value.
• D) Without information about the appropriate interest rate, we cannot find the values of the two annuities, hence we cannot tell which is better.
• E) The annuity due; however, if the payments on both were doubled to R10,000, the deferred annuity would be preferred.

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Definitions:

Transferred Intent

A legal doctrine allowing intent to harm one person to be transferred if an unrelated party is harmed instead.

Mental Element

The state of mind that the prosecution must prove a defendant had when committing an act to establish criminal liability, often referring to intent or knowledge.

Deer Hunting

The activity of tracking and hunting deer, which can be regulated by laws to manage wildlife populations and ensure ethical practices.

Spring Gun

A mechanism designed to discharge a bullet or other projectile, activated unexpectedly by a person approaching, usually considered illegal or dangerous due to its indiscriminate nature.