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.
c. Find the present value of both annuities, assuming that Marian can earn
(1) 10% annual interest and
(2) 20% annual interest.
d. Use your findings in part c to indicate which annuity has the greater present value for both
(1) 10% and
(2) 20% interest rates.
e. Briefly compare, contrast, and explain any differences between your findings using the 10% and 20% interest rates in parts b and d.