Which is greater, the present value of a $1,000 five-year ordinary annuity discounted at 10%, or the present value of a $1,000 five-year annuity due discounted at 10%?
A) The ordinary annuity is worth more with a present value of $3,790.79.
B) The annuity due is worth more with a present value of $4,169.87.
C) The ordinary annuity is worth more with a present value of $4,169.87.
D) The annuity due is worth more with a present value of $4,586.85.
Answer: B
Explanation: B)
PV = PMT × = $1,000 × = $3,790.79.
MODE = END
INPUT 5 10 ? -1,000 0
KEY N I/Y PV PMT FV
CPT 3,790.79
The PV of the annuity due is worth $3,790.79 × (1.10) = $4,169.87.
You might also like to view...
Which of the following is desirable in a good system of internal accounting control?
Select one: A. Appropriate forms, such as checks and sales invoices, should have preprinted control numbers B. Responsibility and authority for a given function should be shared among several employees C. To obtain the benefit of specialization, employees should not be rotated among similar jobs D. All accounting personnel in a firm should be bonded
A Procrustes approach to financial planning is based on:
A. a policy of producing a financial plan once every five years. B. developing a plan around the goals of senior managers. C. a proactive approach to the economic outlook. D. a flexible capital budget. E. a flexible capital structure.