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Consider the following cases. Case Amount of annuity Interest rate Period (years) A $ 12,000 7% 3 B 55,000 12 15 C 700 20 9

Consider the following cases.

Case

Amount of annuity

Interest rate

Period (years)

A

$ 12,000

7%

3

B

55,000

12

15

C

700

20

9

D

140,000

5

7

E

22,500

10

5

Calculate the present value of the annuity, assuming that it is

(1) An ordinary annuity.

(2) An annuity due.

Comparing the two types of annuities, all else equal, which type is more preferable? Why?

A. Ordinary annuity = 2822, annuity due = 3386, annuity due is better because it discounts for one less year.

B. Ordinary annuity = 3386, annuity due = 2282, ordinary annuity is better because it discounts for one less year.

C. Ordinary annuity = 2282, annuity due = 3386, annuity due is better because it compounds for one more year.

D. Ordinary annuity = 3386, annuity due = 2282, ordinary annuity is better because it compounds for one more year.

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