Valuation II Annuities (calculation) -V4

You are evaluating two annuity investments using a discount rate of 12% p.a.

Annuity 1 - This annuity has 6 monthly payments. The first payment of $200 starts immediately, which grow at 0.5% every month.

The cashflow stream in this annuity resembles a/an

Answer

ordinary growth

annuity growth

annuity due ordinary annuity

annuity due (1 mark)

The inputs to calculate this annuity value are:

PMT or CF = Answer (0.5 mark)

n= Answer (0.5 mark)

i= Answer (0.5 mark)

g= Answer (0.5 mark)

The value of this annuity today is: Answer (1 mark)

Annuity 2 - This annuity pays $600 every quarter for 2 quarters.

The cashflow stream in this annuity resembles a/an

Answer

ordinary growth

annuity growth

annuity due

ordinary annuity

annuity due (1 mark)

The inputs to calculate this annuity value are:

PMT or CF = Answer (0.5 mark)

n= Answer (0.5 mark)

i= Answer (0.5 mark)

g= Answer (0.5 mark)

The value of this annuity today is: Answer (1 mark)

You are asked to pay $2,000 to buy any one of the investments.

Which investment will you buy (if any)?

Answer:

Annuity 1

Annuity 2

Buy neither (1 mark).

Calculate the gain.

Answer: Answer (1 mark)