You Are Comparing Three Investments,all of Which Pay $100 a Month

question 69

Multiple Choice

You are comparing three investments,all of which pay $100 a month and have an 8 percent interest rate.One is ordinary annuity,one is an annuity due,and the third investment is a perpetuity.Which one of the following statements is correct given these three investment options?

• A)To be the perpetuity, the payments must occur on the first day of each monthly period.
• B)The ordinary annuity would be more valuable than the annuity due if both had a life of 10 years.
• C)The present value of the perpetuity has to be higher than the present value of either the ordinary annuity or the annuity due.
• D)The future value of all three investments must be equal.
• E)The present value of all three investments must be equal.

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Definitions:

Positive Feedback Loop

A process that occurs in a system where the output enhances or amplifies the initial condition, leading to an increase in the effect.

Co-operation

The process of groups or entities working together towards a common goal, often leading to mutual benefit or success.

Mutualism

A type of symbiotic relationship between two species in which both benefit from the interaction, contributing to their survival and success.

Parasite

An organism that lives in or on another organism (its host) and benefits at the host's expense.