Which statement is true? All else equal, an ordinary annuity is more valuable th
ID: 2738456 • Letter: W
Question
Which statement is true?
All else equal, an ordinary annuity is more valuable than an annuity due.
All else equal, a decrease in the number of payments increases the future value of an annuity due.
An annuity with payments at the beginning of each period is called an ordinary annuity.
All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity.
All else equal, an increase in the number of annuity payments decreases the present value and increases the future value of an annuity.
Explanation / Answer
Answer: All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity.
Because Increasing the interest rate Increases the future value factor and thus future value. An increase in the discount rate decreases the present value factor and the present value. This is because a higher interest rate means you would have to set less aside today to earn a specified amount in the future.
In an ordinary annuity, payments are received at the end of the period. Payments are received or made at the beginning of the period in an annuity due
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