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Author Question: Suppose someone offered you your choice of two equally risky annuities, each paying $5,000 per year ... (Read 352 times)

@Brianna17

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Suppose someone offered you your choice of two equally risky annuities, each paying $5,000 per year for 5 years. One is an annuity due, while the other is a regular (or deferred) annuity. If you are a rational wealth maximizing investor, which annuity would you choose?
◦ The annuity due
◦ The deferred annuity
◦ Either one, because as the problem is set up, they have the same present value.
◦ Without information about the appropriate interest rate, we cannot find the value of the two annuities, hence we cannot tell which is better.
◦ The annuity due; however, if the payments on both were doubled to $10,000, the deferred annuity would be preferred.


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Marked as best answer by @Brianna17 on Apr 25, 2021

blfontai

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@Brianna17

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Reply 2 on: Apr 25, 2021
YES! Correct, THANKS for helping me on my review


Jsherida

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Reply 3 on: Yesterday
Excellent

 

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