Suppose you have a choice of two equally risky annuities, each paying $5,000 per year...
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Suppose you have a choice of two equally risky annuities, each paying $5,000 per year for 5 years. One is an annuity due, while the other is a ordinary annuity. Which is more valuable? Without information about the interest rate, we cannot find the values of the two annuities. Either one, because as the problem is set up, they have the same present value. The annuity due; however, if the payments on both were doubled, the ordinary annuity would be preferred. The annuity due The ordinary annuity
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