Question
You have the choice of two annuities of equal risk, or the same discount rate. Each annuity pays $5,000 per year for 8 years. One
You have the choice of two annuities of equal risk, or the same discount rate. Each annuity pays $5,000 per year for 8 years. One is an annuity due, which pays at the beginning of each year, while the other is an ordinary annuity, which pays at the end of each year. If you are going to be receiving the annuity payments, which annuity would you choose to maximize your wealth?
Select one:
a. ordinary annuity
b. Since we do not know the interest rate, we cannot find the value of the annuities and hence we cannot tell which one is better.
c. annuity due
d. either one because they have the same present value
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