Which of the following transactions would best use the present value of an annuity due of 1 table?
A)Diamond Bar, Inc.rents a truck for 5 years with annual rental payments of $20,000 to be made at the beginning of each year.
B)Michener Co.rents a warehouse for 7 years with annual rental payments of $120,000 to be made at the end of each year.
C)Durant, Inc.borrows $20,000 and has agreed to pay back the principal plus interest in three years.
D)Babbitt, Inc.wants to deposit a lump sum to accumulate $50,000 for the construction of a new parking lot in 4 years.

Question

Quizplus · Accepted Answer

An annuity due involves payments made at the beginning of each period, whereas an ordinary annuity involves payments made at the end of each period. In this case, Diamond Bar, Inc. is making rental payments at the beginning of each year, which is consistent with an annuity due. Therefore, the present value of an annuity due of 1 table would be the most appropriate for calculating the present value of these rental payments.

Which of the Following Transactions Would Best Use the Present