You have the choice of two equally risk annuities, each paying $5,000

You have the choice of two equally risk annuities, each paying $5,000 per year for 8 years. One is an
annuity due and the other is an ordinary annuity.

If you are going to be receiving the annuity
payments, which annuity would you choose to maximize your wealth?
A) the annuity due
B) the ordinary annuity
C) Since we don’t know the interest rate, we can’t find the value of the annuities and hence we
cannot tell which one is better.
D) either one because they have the same present value

ANSWER

A