You Are Comparing Two Annuities

question 26

Multiple Choice

You are comparing two annuities.Annuity A pays $100 at the end of each month for 10 years.Annuity B pays $100 at the beginning of each month for 10 years.The rate of return on both annuities is 8 percent.Which one of the following statements is correct given this information?

• A)The present value of Annuity A is equal to the present value of Annuity B.
• B)Annuity B will pay one more payment than Annuity A will.
• C)The future value of Annuity A is greater than the future value of Annuity B.
• D)Annuity B has both a higher present value and a higher future value than Annuity A.
• E)Annuity A has a higher future value but a lower present value than Annuity B.

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Definitions:

Self-interest

Acting based on one’s own benefit or advantage, often disregarding others.

Utilitarian Theory

A normative ethical theory that proposes actions are right if they benefit the majority, aiming to maximize happiness and reduce suffering.

Equally

Pertaining to being the same in quantity, size, degree, or value, or treating all parties in a situation or context without partiality or discrimination.

Utilitarians

Advocates of utilitarianism, a theory in ethics which states that the best action is the one that maximizes utility, usually defined as that which produces the greatest well-being of the greatest number of people.