Determine whether or not the following situation describes an annuity. If it is an annuity, determine whether the jackpot amount is the annuity's present value or future value. Also, determine whether it is an ordinary annuity or an annuity due. Sam won a lottery jackpot which will pay him $2250 every week for 20 years, starting immediately. Group of answer choices The situation describes a future value of an ordinary annuity. The situation describes a present value of an annuity due. The situation does NOT describe an annuity. The situation describes a future value of an annuity due. The situation describes a present value of an ordinary annuity.
Determine whether or not the following situation describes an annuity. If it is an annuity, determine whether the jackpot amount is the annuity's present value or future value. Also, determine whether it is an ordinary annuity or an annuity due. Sam won a lottery jackpot which will pay him $2250 every week for 20 years, starting immediately. Group of answer choices The situation describes a future value of an ordinary annuity. The situation describes a present value of an annuity due. The situation does NOT describe an annuity. The situation describes a future value of an annuity due. The situation describes a present value of an ordinary annuity.
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 12EA: Your friend has a trust fund that will pay her the following amounts at the given interest rate for...
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Determine whether or not the following situation describes an annuity . If it is an annuity, determine whether the jackpot amount is the annuity's present value or future value . Also, determine whether it is an ordinary annuity or an annuity due.
Sam won a lottery jackpot which will pay him $2250 every week for 20 years, starting immediately.
Sam won a lottery jackpot which will pay him $2250 every week for 20 years, starting immediately.
Group of answer choices
The situation describes a future value of an ordinary annuity.
The situation describes a present value of an annuity due.
The situation does NOT describe an annuity.
The situation describes a future value of an annuity due.
The situation describes a present value of an ordinary annuity.
Expert Solution
Step 1
An annuity is any plan which gives a fixed payment for a predetermined period of time. It is primarily used for retired people to provide them with a source of funds.
The present value of the annuity is the value of the payments if they were discounted by the rate of interest which they earn.
The future value of the annuity is the total value of the payments if they had been deposited and were earning interest.
An ordinary annuity is an annuity that pays the fixed amount at the end of the period.
An annuity due is the annuity that pays the fixed amount at the start of the period.
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