Amount of annuity Interest rate Period (years) $26,000 9% 4 a. Calculate the present value of the annuity assuming that it is (1) An ordinary annuity. (2) An annuity due. b. Compare your findings in parts a(1) and a(2). All else being identical, which type of annuity—ordinary or annuity due—is preferable? Explain why.
Amount of annuity Interest rate Period (years) $26,000 9% 4 a. Calculate the present value of the annuity assuming that it is (1) An ordinary annuity. (2) An annuity due. b. Compare your findings in parts a(1) and a(2). All else being identical, which type of annuity—ordinary or annuity due—is preferable? Explain why.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Present value of an annuity Consider the following case. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)
|
Amount of annuity
|
Interest rate
|
Period (years)
|
|
|
$26,000
|
9%
|
4
|
a. Calculate the present value of the annuity assuming that it is
(1) An ordinary annuity.
(2) An annuity due.
b. Compare your findings in parts
a(1)
and
a(2).
All else being identical, which type of
annuity—ordinary
or annuity
due—is
preferable? Explain why.Expert Solution
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