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.

Understand the historical context and development of banking and its challenges.

Analyze the factors influencing the savings and loan industry.

Understand the role and operations of non-bank financial institutions.

Recognize the global aspect of currency distribution.

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Definitions:

Construction Period Interest

Interest expense incurred during the construction of a long-term asset, which can be capitalized and added to the asset's cost basis.

IFRS Guidelines

The set of international accounting standards and principles that guide how financial statements should be prepared and disclosed.

Impairment Loss

A reduction in the recoverable amount of a fixed asset or goodwill below its carrying amount recorded on the balance sheet.

Input Market

The marketplace where resources or raw materials that a company uses to produce its products are bought and sold.