Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:(TRUE or FALSE?) The PV of the ordinary annuity is larger than the PV of the
annuity due because the cash flows of the annuity due are shifted forward one
year and thus are discounted more.
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- The difference between an ordinary annuity and a annuity due is: A ordinary annuity is when payments are made at the beginning of each period, while for a annuity due the payments are made at the end of each period. An annuity due is an annuity where the loan is repaid in one lump sum at the end of the annuity, while for an ordinary annuity regular payments are made throughout the period of the annuity. An annuity due is when interest is compounded at the same time as payments are made, while for a ordinary annuity the interest and payment periods are different. A ordinary annuity is when payments are made at the end of each period, while for a annuity due the payments are made at the beginning of each period. An ordinary annuity is when interest is compounded at the same time as payments are made, while for a annuity due the interest and payment periods are different.arrow_forwardThe difference between an ordinary annuity and an annuity due is that each of the payments of the annuity due earns interest for one additional year (period). * True Falsearrow_forwardcan someone help me pleasearrow_forward
- Not too long ago, interest rates were essentially zero. If interest rates fall to 1/100th of a basis point (r = 0.000001), which of the following is true (if we round to the nearest dollar)? Select all that are true. A) the present value of the annuity will equal the sum of the annuity cash flows B) the future value of the annuity will equal the sum of the annuity cash flows C) the present value of the annuity will equal the future value of the annuity D) annuity values cannot be solved at a rate of 0.0001%arrow_forwardFuture value of an ordinary annuity. Fill in the missing future values in the following table for an ordinary annuity:arrow_forwardYou are comparing two annuities. Annuity A pays $115 at the end of each year for 5 years. Annuity B pays $105 at the beginning of each year for 5 years. The rate of return on both annuities is 12 percent. Which one of the following statements is correct given this information? Annuity B has both a higher present value and a higher future value than Annuity A. O Annuity A has both a higher present value and a higher future value than Annuity B. O Annuity A has the same present value and future value as Annuity B.arrow_forward
- Suppose you are going to receive $14,500 per year for five years. The appropriate interest rate is 8 percent. a-1. What is the present value of the payments if they are in the form of an ordinary annuity? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a-2. What is the present value of the payments if the payments are an annuity due? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-1. Suppose you plan to invest the payments for five years. What is the future value if the payments are an ordinary annuity? Note: Do not round intermediate..arrow_forwardPlease help. Please don't use excelarrow_forwardYou are explaining how a variable annuity functions to one of your clients. Which of the following statements is true? A) Withdrawals are always federal income tax-free. B) Growth inside the annuity is taxed annually. C) The growth in the variable annuity is guaranteed. D) The rates of return may fluctuate depending on how the account value is invested.arrow_forward
- the discount rate or the interest rate increases for a given time period? As the discount rate or the interest rate decreases? 10. Relationship between an ordinary annuity and an annuity due. Compare the present value of a $6,000 ordinary annuity at 10 percent interest for ten years with the present value of a $6,000 annuity due at 10 percent interest for eleven years. Explain the difference.arrow_forwardWhat is an annuity?* a.An investment that has no definite end and a stream of cash payments that continues forever b.A stream of cash flows that start one year from today and continue while growing by a constant growth rate c A series of equal payments at equal time periods and guaranteed for a fixed number of years d.A series of unequal payments at equal time periods which are guaranteed for a fixed number of yearsarrow_forwardPlease answer fast I will rate for you sure....arrow_forward
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