Which Is Greater,the Present Value of a Five-Year Ordinary Annuity

question 105

Multiple Choice

Which is greater,the present value of a five-year ordinary annuity of $300 discounted at 10%,or the present value of a five-year ordinary annuity of $300 discounted at 0% that has its first cash flow six years from today?

• A)The first annuity because the cash flows occur sooner.
• B)The second annuity because the cash flows are discounted at a 0% interest rate.
• C)The two annuities are of equal value.
• D)The answer to this question cannot be determined.

Recognize the criteria for the recognition of elements in financial statements.

Comprehend financial flexibility and liquidity and their significance in financial analysis.

Identify assets likely to be reported at historical cost on the balance sheet.

Understand the concept and practical implications of liabilities in financial contexts.

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Definitions:

Debt Ratio

A financial ratio that measures the extent of a company's or individual's leverage, calculated by dividing total liabilities by total assets.

Rational Individual

Refers to a person who makes choices that maximize their personal benefit or utility, based on their own preferences and available information.

Charity

An act of giving help, typically in the form of money or goods, to those in need.

Predicts Well

"Predicts well" refers to the accuracy and reliability with which a model or method can forecast future events or outcomes based on current or past data.