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Which of the following concepts is incorrect?
- a)An ordinary annuity has payments at the end of each year.
- b)An annuity due has payments at the beginning of each year.
- c)A perpetuity is considered a perpetual annuity.
- d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.
Correct answer is option 'D'. Can you explain this answer?
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Which of the following concepts is incorrect?a)An ordinary annuity has...
Because The annuity due has a greater PV because it pays one year earlier than ordinary annuity.
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Which of the following concepts is incorrect?a)An ordinary annuity has...
Incorrect Concept: An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate, and time period.
Explanation:
An annuity is a series of equal cash flows received or paid at equal intervals of time. There are two types of annuities, ordinary annuity and annuity due.
- Ordinary Annuity: In an ordinary annuity, the periodic payments are made at the end of each period, such as the end of each year or the end of each month.
- Annuity Due: In an annuity due, the periodic payments are made at the beginning of each period, such as the beginning of each year or the beginning of each month.
Perpetuity is an annuity that pays an infinite stream of cash flows that never ends.
Now, let's consider the given concept:
An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate, and time period.
This concept is incorrect. The PV of an annuity is the present value of all the future cash flows of the annuity. The PV of an annuity due is always greater than the PV of an ordinary annuity, given that they both have the same periodic payments, discount rate, and time period. This is because the cash flows of an annuity due are received one period earlier than the cash flows of an ordinary annuity. Therefore, the cash flows of an annuity due have more time to earn interest and thus have a higher present value.
In summary, the correct concept is:
- The PV of an annuity due is always greater than the PV of an ordinary annuity, given that they both have the same periodic payments, discount rate, and time period.
Explanation:
An annuity is a series of equal cash flows received or paid at equal intervals of time. There are two types of annuities, ordinary annuity and annuity due.
- Ordinary Annuity: In an ordinary annuity, the periodic payments are made at the end of each period, such as the end of each year or the end of each month.
- Annuity Due: In an annuity due, the periodic payments are made at the beginning of each period, such as the beginning of each year or the beginning of each month.
Perpetuity is an annuity that pays an infinite stream of cash flows that never ends.
Now, let's consider the given concept:
An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate, and time period.
This concept is incorrect. The PV of an annuity is the present value of all the future cash flows of the annuity. The PV of an annuity due is always greater than the PV of an ordinary annuity, given that they both have the same periodic payments, discount rate, and time period. This is because the cash flows of an annuity due are received one period earlier than the cash flows of an ordinary annuity. Therefore, the cash flows of an annuity due have more time to earn interest and thus have a higher present value.
In summary, the correct concept is:
- The PV of an annuity due is always greater than the PV of an ordinary annuity, given that they both have the same periodic payments, discount rate, and time period.
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Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer?
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Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer?.
Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the following concepts is incorrect?a)An ordinary annuity has payments at the end of each year.b)An annuity due has payments at the beginning of each year.c)A perpetuity is considered a perpetual annuity.d)An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate and time period.Correct answer is option 'D'. Can you explain this answer?.
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