Calculate the Difference in the Current Economic Values of the Following

question 191

Multiple Choice

Calculate the difference in the current economic values of the following two annuities: Annuity "X": Payments of $10,000 made at the end of each year for the next 35 years.
Annuity "Y": Payments of $10,000 made at the end of each year for the next 55 years.
Use an interest rate of 13% compounded annually for both annuities.

• A) Annuity "Y" is worth $70,248 more than Annuity "X."
• B) Annuity "Y" is worth $26,225 more than Annuity "X."
• C) Annuity "Y" is worth $8,672 more than Annuity "X."
• D) Annuity "Y" is worth $975 more than Annuity "X."
• E) Annuity "Y" is worth $203 more than Annuity "X."

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Definitions:

Revenue

The total amount of money received by a company for goods sold or services provided during a specific period.

Cash Discount

An incentive offered by sellers to encourage buyers to pay earlier, resulting in a reduction in the amount due.

Captive Finance Company

A finance company that is wholly owned by a parent company, primarily for the purpose of providing financing to the customers of the parent company.

Credit Function

The role of extending credit to consumers or businesses, enabling the purchase of goods or services before payment.