If the Risk-Free Rate of Interest (R_f)is 5%, Then You

question 11

Multiple Choice

If the risk-free rate of interest (r_f) is 5%, then you should be indifferent between receiving $300 in one year or

• A)$280.83 today.
• B)$285.71 today.
• C)$255.17 today.
• D)none of the above

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Definitions:

Ordinary Annuity

An ordinary annuity is a series of equal payments made at the end of consecutive periods over a fixed length of time.

Deferred Annuity

An insurance product that provides for the accumulation of capital on a tax-deferred basis, with payouts commencing at a future date, typically used as a retirement planning tool.

Ordinary Annuity

A series of equal payments made at regular intervals, with the typical assumption that each payment occurs at the end of a period.

Deferred Annuity

An insurance product that provides future payments to the holder, typically starting at retirement, after an initial investment period.