Which of the following statements about annuities are true? Check all that apply. An annuity due…
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Question “Which of the following statements about annuities are true? Check all that apply. An annuity due…”
Answer
Part 1:
Correct statement are: 1, 2 and 4
Annuities are a set of equal cash flow payments which are made periodically for a specific time period. Annuities due have periodic cash flow payments that are made at start of period. This is in contrast to regular annuities which are made at end of period. Annuities due would also compound for a longer period of time, as they were paid at the beginning of the period. This would allow them to earn more interest than an ordinary annuity.
Part 2:
Option 2. Regular payments are made on a monthly basis for three years. Option 1: Wages are paid based upon hours, but only once.
Part 3:
This is an ordinary annuity.
FV = $1.130 * 8.152
FV = $9.170.64 (Closest to Option 1)
Part 4:
This would be now an annuity due.
FV = $1.130 * 8.1152* 1.12
FV = $10,270.58
Conclusion
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