Question

Annuity X will pay you RM10,000 at the beginning of the year for each of the...

Annuity X will pay you RM10,000 at the beginning of the year for each of the next 10 years. Annuity Y will pay you RM8,000 at the end of the year for each of the next 15 years. Assuming the interest rate is 5% per annum for both annuities, which of the following is TRUE? (Round to the nearest figures)
Select one:
a. The present value of Annuity Y is greater than Annuity X.
b. The present value of Annuity X is greater than Annuity Y.
c. The present value of both Annuity X and Annuity Y is the same.
d. The present value of both Annuity Y and Annuity X is unknown.

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Answer #1

An annuity is the series of equal payments made at an equal intervals.

When annuity payment is made at the beginning of the period, it is referred to as an Annuity due.

Present Value of Annuity X = RM 10,000 * PVAD(5%, 10)
= RM 10,000 * 8.1078
= RM 81,078

When annuity payment is made at the end of the period, it is referred to as Ordinary Annuity.

Present Value of Annnuity Y = RM 8,000 * PVA (5%,15)
= RM 8,000 * 10.3797
= RM 83,038

Therefore, the Present Value of Annuity Y is greater than Annuity X
Option A is correct.

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