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You are offered the choice of two annuities. A:  Receive $100 every year for the next ten years. The first payment starts one year from today. B:  Receive $204 every two years for the next ten years. The first payment starts two years from today. Without calculating the present values of the annuities, explain how you can obtain the rate of interest per annum that would make you indifferent between the two annuities

You are offered the choice of two annuities. A:  Receive $100 every year for the next ten years. The first payment starts one year from today. B:  Receive $204 every two years for the next ten years. The first payment starts two years from today. Without calculating the present values of the annuities, explain how you can obtain the rate of interest per annum that would make you indifferent between the two annuities

Essentials Of Investments
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
Section: Chapter Questions
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You are offered the choice of two annuities.

  1. A:  Receive $100 every year for the next ten years. The first payment starts one year from today.

  2. B:  Receive $204 every two years for the next ten years. The first payment starts two years from today.

Without calculating the present values of the annuities, explain how you can obtain the rate of interest per annum that would make you indifferent between the two annuities.

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