Angelina Jolie purchased an annuity today that will pay $1,000 a month for five

Question

Angelina Jolie purchased an annuity today that will pay $1,000 a month for five years. She received her first monthly payment today. Brad Pitt purchased an annuity today that will pay $1,000 a month for five years. Mr. Pitt will receive his first payment one month from today. Which one of the following statements is correct concerning these two annuities? OBoth annuities are of equal value today O Mr. Pitt's annuity has a higher present value than Ms.Molie's OMs. Jolie's annuity has a higher present value than Mr. Pitt's OMr. Pitt's annuity is an annuity due O Mr. Pitt's annuity has a higher future value than Ms. Jolie's

Explanation / Answer

Answer is C.

Ms. Jolie’s annuity is an annuity due as its first payment is made today, whereas, Mr. Pitt’s annuity is an ordinary annuity as its first payment is made after 1 month.
Other things being same, present value of annuity due is always higher than that of ordinary annuity.
Other things being same, future value of annuity due is always higher than that of ordinary annuity.

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