BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The ordinary annuity is worth more with a present value of $3, 790.79.
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The annuity due is worth more with a past value of $4, 169.87.
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The ordinary annuity is worth more with a present value of $4, 169.87.
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The annuity due is worth more with a present value of $4, 169.87.
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Detailed explanation-1: -Which is greater, the present value of a $1, 000 five-year ordinary annuity discounted at 10%, or the present value of a $1, 000 five-year annuity due discounted at 10%? The ordinary annuity is worth more with a present value of $3, 790.79. The annuity due is worth more with a present value of $4, 169.87.
Detailed explanation-2: -The payments made on an annuity due have a higher present value than an ordinary annuity due to inflation and the time value of money. Besides the question of making or collecting payments, interest rates are a factor in evaluating annuities.
Detailed explanation-3: -Answer and Explanation: Therefore, the future value of the ordinary annuity is $3, 315.
Detailed explanation-4: -The correct answer is Rs. 80. Explanation: The current value of a future sum of money, at a certain rate of return, is known as the present value.
Detailed explanation-5: -The answer is (B.) The second annuity [has a greater value] because the cash flows are discounted at a 0% interest rate.