You are comparing two annuities. Annuity A pays $100 at the end of each month fo

Question

You are comparing two annuities. Annuity A pays $100 at the end of each month for 10 years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of return on both annuities is 8 percent. Which one of the following statements is correct given this information?


The future value of Annuity A is greater than the future value of Annuity B.
Annuity B will pay one more payment than Annuity A will.
Annuity A has a higher future value but a lower present value than Annuity B.
Annuity B has both a higher present value and a higher future value than Annuity A.
The present value of Annuity A is equal to the present value of Annuity B.

Explanation / Answer

Annuity A pays $100 at the end of each month for 10 years. Annuity B pays $100 at the beginning of each month for 10 years rate of return on both annuities is 8 percent See you are getting money early in B so for future value, compounding time will increase, Hence MORE FUTURE VALUE. MORE FUTURE VALUE MEANS MORE PRESENT VALUE TOO. THEREFORE Annuity B has both a higher present value and a higher future value than Annuity A. PLEASE RATE

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