Kay owns two annuities that will each pay $500 a month for the next 12 years.One payment is received at the beginning of each month while the other is received at the end of each month.At a discount rate of 7.25 percent,compounded monthly,what is the difference in the present values of these annuities?
A)$289.98
B)$265.42
C)$299.01
D)$308.00
E)$312.50

Question

Quizplus · Accepted Answer

The difference in the present values of the annuities is calculated by finding the present value of an annuity due and an ordinary annuity and then subtracting the latter from the former. The annuity due has a higher present value because payments are received at the beginning of each period. The difference is $289.98.

Kay Owns Two Annuities That Will Each Pay $500 a Month