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

question 111

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 lower interest rate.
• C) The two annuities are of equal value.
• D) The answer to this question cannot be determined.

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