Which is greater, the present value of a five-year ordinary annuity of $300 discounted at 10%, or the present value of a five-year ordinary annuity of $300 discounted at 0% that has its first cash flow six years from today?
A) The first annuity because the cash flows occur sooner.
B) The second annuity because the cash flows are discounted at a 0% interest rate.
C) The two annuities are of equal value.
D) The answer to this question cannot be determined.
Answer: B
Explanation: B)
PV = PMT × = $300 × = $1,137.24 vs. the cash flows discounted at 0.0% that have a PV of $1,500.
MODE = END
INPUT 5 10 ? -300 0
KEY N I/Y PV PMT FV
CPT 1,137.24
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