Investment A will make N annual payments of $500 with the first of the N payment

Question

Investment A will make N annual payments of $500 with the first of the N payments due immediately. Investment B is an ordinary annuity that will make (N minus 1) annual payments of $500 with the first payment due in one year from today. Investment B has a value of $20,000. If investment A and investment B have the same expected return, then what is the value of investment A?

1. $19,500

2. The value of investment A can be determined from the information given, but it is not equal to $19,500, $20,000, or $20,500

3. $20,500

4. The value of investment A can not be determined from the information given

5. $20,000

1. $19,500

2. The value of investment A can be determined from the information given, but it is not equal to $19,500, $20,000, or $20,500

3. $20,500

4. The value of investment A can not be determined from the information given

5. $20,000

Explanation / Answer

Ans: 1) $19500

calculation : Value of investment B - 500 = 20000 - 500 = 19500.

since one extra payment is made.

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