John Pierce wishes to select one of the two annuities on offer. Annuity 1 is an ordinary

Question:

John Pierce wishes to select one of the two annuities on offer.

Annuity 1 is an ordinary annuity of £1,250 per year for 10 years. Annuity 2 is an annuity due of £1,150 per year for 10 years.

a. Find the future value of both annuities 10 years from now, assuming that John can earn (1) 5% annual interest and (2) 11% annual interest.

b. Use your findings in part a to indicate which annuity has the greater future value after 10 years for both the (1) 5% and (2) 11% interest rates.

c. Find the present value of both annuities, assuming that John can earn (1) 5% annual interest and (2) 11% annual interest.

d. Use your findings in part c to indicate which annuity has the greater present value for both (1) 5% and (2) 11% interest rates.

e. Briefly compare, contrast, and explain any differences between your findings using the 6% and 10% interest rates in parts b and d.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Principles Of Managerial Finance

ISBN: 9781292400648

16th Global Edition

Authors: Chad Zutter, Scott Smart

Question Posted: