Question
1. Consider three investment alternatives: a perpetuity, an ordinary annuity, and an annuity due. All three have the SAME annual payment amount. The annuity due
1. Consider three investment alternatives: a perpetuity, an ordinary annuity, and an annuity due. All three have the SAME annual payment amount. The annuity due and the ordinary annuity have the same number of payments (e.g., 6 payments). The interest rate is positive and the same for all three investments. Given this information, which of the following statements is correct? a. The present value of the ordinary annuity is less than the present value of the annuity due. b. The perpetuity and the annuity due have the same present value. c. The future value of the ordinary annuity is less than future value of the annuity due. d. The present value of the ordinary annuity is greater than the present value of the perpetuity. e. There is not enough information provided to correctly answer this question.
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