You Are Considering Two Equally Risky Annuities, Each of Which

question 124

Multiple Choice

You are considering two equally risky annuities, each of which pays $15,000 per year for 20 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT?

• A) if the going rate of interest decreases from 10% to 0%, the difference between the present value of ord and the present value of due would remain constant.
• B) the present value of ord must exceed the present value of due, but the future value of ord may be less than the future value of due.
• C) the present value of due exceeds the present value of ord, while the future value of due is less than the future value of ord.
• D) the present value of ord exceeds the present value of due, and the future value of ord also exceeds the future value of due.
• E) the present value of due exceeds the present value of ord, and the future value of due also exceeds the future value of ord.

---

Definitions:

Air Tanks

Containers designed to hold compressed air used in various systems, such as braking systems in large vehicles.

S-cam Foundation Brake

A common type of drum brake system used in heavy vehicles, where an S-shaped camshaft tightens the brake shoes to create braking force.

Brake Shoe Rollers

Components in drum brake systems that allow brake shoes to move smoothly when pressure is applied.

S-cam Profiles

The shape and design of the cams used in a drum brake system which push the brake shoes apart and against the braking surface to stop the vehicle.