You have the opportunity to invest in several annuities. Which of the following

Question

You have the opportunity to invest in several annuities. Which of the following 10-year annuities has the greatest present value (PV)? Assume that all annuities earn the same positive interest rate An annuity that pays $1,000 at the end of each year O An annuity that pays $500 at the end of every six months O An annuity that pays $500 at the beginning of every six months O An annuity that pays $1,000 at the beginning of each year An ordinary annuity selling at $9,630.98 today promises to make equal payments at the end of each year for the next six years (N). If the annuity's appropriate interest rate (1) remains at 8.00% during this time, the annual annuity payment (PMT) will be You just won the lottery. Congratulations! The jackpot is $85,000,000, paid in six equal annual payments. The first payment on the lottery jackpot will be made today. In present value terms, you really won assuming annual interest rate of 8.00%.

Explanation / Answer

The earlier the annuity due and greater the payment more is the present value:
Hence annuity paying 1000 at beginning of each year shall have greateest value
Last option is correct

PV=-9630.98
rate = .08
n=6

Using excel formula:
=PMT(0.08,6,-9630.98,0)

=$2083.33

pmt=85 mil/6=14.1667 million
rate = 0.08
n=6
using excel:
=PV(0.08,6,14666666.666667,0,1)
=$73,226,413.88

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