Suppose you are going to receive $13,500 per year for five years. The appropriate interest rate is 7.5 percent.
a. What is the present value of the payments if they are in the form of an ordinary annuity? What is the present value if the payments are an annuity due?
b. Suppose you plan to invest the payments for five years. What is the future value if the payments are an ordinary annuity? What if the payments are an annuity due?
c. Which has the higher present value, the ordinary annuity or annuity due? Which has the higher future value? Will this always be true?