COMMWORK is considering equally risky annuities, (a) each of which pays $5,000 per year for 10 years.  (b) Investment CORD is an ordinary (or deferred) annuity, while Investment RUE is an annuity due.    Given the scenario above, the correct statement is: If the going rate of interest decreases from 10% to 0%, the difference between the present value of CORD and the present value of RUE would remain constant. The present value of RUE exceeds the present value of CORD, and the future value of RUE also exceeds the future value of CORD. The present value of CORD must exceed the present value of RUE, but the future value of CORD may be less than the future value of RUE. The present value of DUE exceeds the present value of CORD, while the future value of RUE is less than the future value of CORD. The present value of CORD exceeds the present value of RUE, and the future value of CORD also exceeds the future value of RUE. Group of answer choices 5 4 2 Cannot be determined 1 3

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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10. 

COMMWORK is considering equally risky annuities,

(a) each of which pays $5,000 per year for 10 years. 

(b) Investment CORD is an ordinary (or deferred) annuity, while Investment RUE is an annuity due. 

 

Given the scenario above, the correct statement is:

  1. If the going rate of interest decreases from 10% to 0%, the difference between the present value of CORD and the present value of RUE would remain constant.
  2. The present value of RUE exceeds the present value of CORD, and the future value of RUE also exceeds the future value of CORD.
  3. The present value of CORD must exceed the present value of RUE, but the future value of CORD may be less than the future value of RUE.
  4. The present value of DUE exceeds the present value of CORD, while the future value of RUE is less than the future value of CORD.
  5. The present value of CORD exceeds the present value of RUE, and the future value of CORD also exceeds the future value of RUE.
Group of answer choices
5
4
2
Cannot be determined
1
3
 
 
 
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