You Are Considering Two Equally Risky Annuities, Each of Which

question 93

Multiple Choice

You are considering two equally risky annuities, each of which pays $25,000 per year for 10 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) a rational investor would be willing to pay more for due than for ord, so their market prices should differ.
• 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 ord exceeds the present value of due, while the future value of due exceeds the future value of ord.

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Definitions:

Chi-square Statistic

A measure used in statistics to assess the differences between observed and expected outcomes in categorical datasets.

Subsequent Arrests

Arrests that occur after the initial arrest, indicating instances of repeat or additional offenses by an individual.

Re-arrest Rates

The frequency at which individuals who have been previously arrested are arrested again within a specific time frame.

Null Hypothesis

A statement in statistics that suggests there is no significant effect or difference between specified populations, any observed difference being due to sampling or experimental error.