Marian Kirk wishes to select the better of two 10-year annuities, C and D. Annuity C is an ordinary annuity of $2,500 per year for 10 years. Annuity D is an annuity due of $2,200 per year for 10 years.

a. Find the future value of both annuities at the end of year 10, assuming that Marian can earn

(1) 10% annual interest and

(2) 20% annual interest.

b. Use your findings in part a to indicate which annuity has the greater future value at the end of year 10 for both the

(1) 10% and

(2) 20% interest rates.

Question

Business

Gideon Mccullough

6 November, 13:42

Marian Kirk wishes to select the better of two 10-year annuities, C and D. Annuity C is an ordinary annuity of $2,500 per year for 10 years. Annuity D is an annuity due of $2,200 per year for 10 years.

a. Find the future value of both annuities at the end of year 10, assuming that Marian can earn

(1) 10% annual interest and

(2) 20% annual interest.

b. Use your findings in part a to indicate which annuity has the greater future value at the end of year 10 for both the

(1) 10% and

(2) 20% interest rates.

+4

Answers (1)

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Moshe Haney · Answer 1

Instructions are listed below

Explanation:

Giving the following information:

Two 10-year annuities:

Annuity C: $2,500 per year for 10 years.

Annuity D: $2,200 per year for 10 years.

To find the future value we need to use the following formula:

FV=PV * (1+i) ^n

PV: Present value

i = interest rate

A)

1.

Annuity C = 2500 * (1,10^10) = $6484.36

Annuity D = 2200 * (1.10^10) = $5706.23

2.

Annuity C = 2500 * (1,20^10) = $15479.34

Annuity D = 2200 * (1.20^10) = $13621.82

B) Annuity C presents a greater future value in both cases because it presents a bigger present value.