You Are Considering Two Equally Risky Annuities, Each of Which

question 117

Multiple Choice

You are considering two equally risky annuities, each of which pays $25,000 per year for 10 years.Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due.Which of the following statements is CORRECT?

• A) If the going rate of interest decreases from 10% to 0%, the difference between the present value of ORD and the present value of DUE would remain constant.
• B) A rational investor would be willing to pay more for DUE than for ORD, so their market prices should differ.
• C) The present value of DUE exceeds the present value of ORD, while the future value of DUE is less than the future value of ORD.
• D) The present value of ORD exceeds the present value of DUE, and the future value of ORD also exceeds the future value of DUE.
• E) The present value of ORD exceeds the present value of DUE, while the future value of DUE exceeds the future value of ORD.

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Definitions:

Social Circumstances

The environmental, cultural, and economic contexts in which an individual lives and interacts, shaping their experiences and behaviors.

Psychologically Disordered Behavior

Actions or patterns of behavior that are associated with distress or disability and are not culturally expected.

Biological Evolution

The process by which species of organisms change over time through variations in genetics and traits, leading to the emergence of new species.

Genetically Influenced Abnormalities

Disorders or conditions that are significantly affected by genetic factors, which can lead to deviations from the typical or expected physical or mental development.