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4)
The total amount of cash flows remains the same, but more of the
cash flows are received in the earlier years and less are received in the
later years
5)
The discount rate decreases
5. You are considering two equally risky annuities, each of which
pays $5,000 per year for 10 years. Investment ORD is an ordinary (or
deferred) annuity, while Investment DUE is an annuity due. Which of
the following statements is CORRECT?
1) A rational investor would be willing to pay more for DUE than for
ORD, so their market prices should differ.
2) The present value of DUE exceeds the present value of ORD, while
the future value of DUE is less than the future value of ORD.
3) The present value of ORD exceeds the present value of DUE, and the
future value of ORD also