Which Is Greater,the Present Value of a Five-Year Ordinary Annuity

question 105

Multiple Choice

Which is greater,the present value of a five-year ordinary annuity of $300 discounted at 10%,or the present value of a five-year ordinary annuity of $300 discounted at 0% that has its first cash flow six years from today?

• A)The first annuity because the cash flows occur sooner.
• B)The second annuity because the cash flows are discounted at a 0% interest rate.
• C)The two annuities are of equal value.
• D)The answer to this question cannot be determined.

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Definitions:

Lay Epistemology

The way in which ordinary people form beliefs, understandings, and knowledge about the world around them.

Preexisting Beliefs

Preconceived notions or assumptions held before receiving new information.

Rational Assessment

The process of evaluating situations, propositions, or decisions based on logical reasoning and evidence.

Gut Feelings

Intuitive judgments or responses that one cannot easily articulate, often based on subconscious processing of information.