Question

Time value years. Annuities Personal Finance Problem Marian Kirk wishes to select the better of two 4-year annuities, C and D. Annuity C is an ordinary annuity of $2,990 per year for 4 years. Annuity D is an annuity due of $2,590 per year for 4 a. Find the future value of both annuities at the end of year 4, assuming that Marian can earn (1) 11% annual interest and (2) 22% annual interest. b. Use your findings in part a to indicate which annuity has the greater future value at the end of year 4 for both the (1) 11% and (2) 22% interest rates C. Find the present value of both annuities, assuming that Marian can earn (1) 11% annual interest and (2) 22% annual interest. d. Use your findings in partc to indicate which annuity has the greater present value for both the (1) 11% and (2) 22% interest rates. e. Briefly compare, contrast, and explain any differences between your findings using the 11% and 22% interest rates in parts b and d.

Answer 1

А B D F 2990 2590 1 OPTIONC 2 ANNUITY 3 PERIOD 4. INTEREST RATE OPTION D ANNUITY PERIOD INTEREST RATE 11% 22% 6 CALCULATION OF THE FUTURE VALUE 8 A) FV $14,082.10 --FV(B4,B3,B2,,0) $14,307.80 --FV(D4,D3,D2,0) 11 B) OPTIN D HAS THE HIGHER FUTURE VALUE 13 C) PRESNT VALUE 14 PV $9,276.31 --PV(B4,B3,B2,,0) $6,458.53 --PV(D4,D3,D2,0) 17 OPTIN C HAS THE HIGHER PRESENT VALUE so option D should be choosen 19 E) in present vaue calculation calculated above we can say that option d should be choose 20 as we have to invest less. Same thing can be infered in above future value calculation 21 option d has the higher future value so it should be selected.. 22 Therefore it can be said that present value or future value calculations gives the same conclusion 23 in case of choice out of given options 72