Asked by Paolina Gonzalez on May 09, 2024
Verified
Annuity G has the same i and PMT as Annuity H. G has twice as many payments as H. Is G's present value (pick one): (i) double, (ii) more than double, or (iii) less than double the amount of H's present value? Give the reason for your choice.
Present Value
The present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return.
Annuity
A financial instrument providing a steady series of payments to a person, mainly utilized as a source of income for people in retirement.
- Calculate and assess the future and present valuations of annuities with respect to different payment timings and levels of interest rates.
- Evaluate the economic effects of modifying the payment schedules for investments and loans.
Verified Answer
SZ
Sohaib ZaidiMay 16, 2024
Final Answer :
G's present value is (iii) less than double H's present value. The latter half of G's payments will be discounted more heavily than the earlier half of G's payments.
Learning Objectives
- Calculate and assess the future and present valuations of annuities with respect to different payment timings and levels of interest rates.
- Evaluate the economic effects of modifying the payment schedules for investments and loans.