Ask Question
9 April, 20:22

Augustine is interested in whether he should purchase an annuity or an annuity due today. The annuity that he is considering will pay $100 per year starting in 2 years and ending in 5 years. The annuity due will begin payments of $100 per year for 4 years starting in 1 years. With a discount rate of 11%, which investment should he purchase today and why?

Answers (1)
  1. E
    9 April, 21:24
    0
    Annuity due

    Explanation:

    In this question we have to compare the present value based on annuity or annuity due.

    On annuity:

    Years Cash flows Discount factor Present value

    2 $100.00 0.8116224332 $81.16

    3 $100.00 0.7311913813 $73.12

    4 $100.00 0.6587309741 $65.87

    5 $100.00 0.5934513281 $59.35

    Present value $279.50

    On annuity due

    Years Cash flows Discount factor Present value

    2 $100.00 0.9009009009 $90.09

    3 $100.00 0.8116224332 $81.16

    4 $100.00 0.7311913813 $73.12

    5 $100.00 0.6587309741 $65.87

    Present value $310.24

    Therefore, he should purchase annuity due as it has the high present value
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Augustine is interested in whether he should purchase an annuity or an annuity due today. The annuity that he is considering will pay $100 ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers
Sign In
Ask Question