You Are Comparing Two Annuities with Equal Present Values

question 5

Multiple Choice

You are comparing two annuities with equal present values.The applicable discount rate is 7.25 percent,compounded annually.One annuity pays $6,500 on the first day of each year for 20 years.How much does the second annuity pay each year for 20 years if it pays at the end of each year?

• A)$5,581.40
• B)$6,060.61
• C)$6,028.75
• D)$6,971.25
• E)$7,086.50

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Definitions:

Foreclosed

A legal process in which a lender attempts to recover the balance of a loan from a borrower who has failed to make payments, by forcing the sale of the asset used as the collateral for the loan.

Mortgage Payments

Regular payments made towards the principal and interest of a mortgage loan, often on a monthly basis, to pay off the borrowed amount over time.

Security Interest

A legal right or claim on property, granted to a creditor, ensuring the property serves as collateral for a debt and can be repossessed if the debt is not repaid.

Security Agreement

A legal document that provides a lender a security interest in a specified asset or property that is pledged as collateral for a loan.