Ted Purchased an Annuity Today That Will Pay $1,000 a Month

question 62

Multiple Choice

Ted purchased an annuity today that will pay $1,000 a month for five years.He received his first monthly payment today.Allison purchased an annuity today that will pay $1,000 a month for five years.She will receive her first payment one month from today.Which one of the following statements is correct concerning these two annuities?

• A)Both annuities are of equal value today.
• B)Allison's annuity is an annuity due.
• C)Ted's annuity has a higher present value than Allison's.
• D)Allison's annuity has a higher present value than Ted's.
• E)Ted's annuity is an ordinary annuity.

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Definitions:

Preferences

The subjective tastes and desires that guide consumers in making their choice among various goods and services.

Incomplete

Characterizing something as not fully finished, lacking some parts, or not comprehensive.

Transitive

A relation is described as transitive if, whenever it relates some A to B and B to C, it also relates A to C.

Marginal Rate of Substitution

The rate at which a consumer is willing to give up one good in exchange for another good while maintaining the same level of utility or satisfaction.