Suppose Someone Offered You Your Choice of Two Equally Risky

question 60

Multiple Choice

Suppose someone offered you your choice of two equally risky annuities,each paying $5,000 per year for 5 years.One is an annuity due,while the other is a regular (or deferred) annuity.If you are a rational wealth maximizing investor,which annuity would you choose?

• A) The annuity due
• B) The deferred annuity
• C) Either one, because as the problem is set up, they have the same present value.
• D) Without information about the appropriate interest rate, we cannot find the value of the two annuities, hence we cannot tell which is better.
• E) The annuity due; however, if the payments on both were doubled to $10,000, the deferred annuity would be preferred.

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Definitions:

Digestive Tract

The series of organs in the body through which food passes, nutrients are absorbed, and waste is eliminated.

Muscle Tissue

A tissue composed of fibers capable of contracting to effect bodily movement.

Epithelial

Pertaining to the epithelium, a layer of cells covering the body surfaces or lining cavities.

Reticular Connective Tissue

A type of connective tissue that contains a network of reticular fibers, supporting the framework of organs like the spleen and lymph nodes.