Question

- Explain the meaning of this statement: Annuity due differs from ordinary annuity. In case of annuity due, show the required change in the future value and present value equations.

Answer #1

Ordinary annuity is the series of equal cash flows at the end of each period. Whereas, annuity due is the series of equal cash flows at the beginning of each period.

In case annuity due, interest for an additional period is earned as compared to ordinary annuity. Due to this present value and future value of annuity due is always higher than ordinary annuity.

Present value of annuity due = Present value of ordinary annuity
* (1 + Interest rate)

Future value of annuity due = Future value of ordinary annuity * (1
+ Interest rate)

When comparing annuity due to ordinary annuities, annuity due
annuities will have higher
Select one
A. Annuity amounts
B. Present and Future values
C. Present Value
D. Future Value

Present value of an ordinary annuity and annuity due.
Jill Morris is presently leasing a small business computer from
Eller Office Equipment Company. The lease requires 10 annual
payments of $6,000 at the end of each year and provides the lessor
(Eller) with an 8% return on its investment. You may use the
following 8% interest factors:
9 Periods
10 Periods
11 Periods
Future Value of 1
1.99900
2.15892
2.33164
Present Value of 1
.50025
.46319
.42888
Future Value of...

Present value of an ordinary annuity and annuity due. (Show your
work)
Jill Morris is presently leasing a small business computer from
Eller Office Equipment Company. The lease requires 10 annual
payments of $6,000 at the end of each year and provides the lessor
(Eller) with an 8% return on its investment. You may use the
following 8% interest factors:
9 Periods 10
Periods 11 Periods
Future Value of
1
1.99900
2.15892
2.33164
Present Value of
1
.50025
.46319 ...

When comparing an annuity due to an ordinary annuity, an annuity
due:
will always have lower present values and higher future values
assuming equal payments, interest rates and terms.
will always have lower future values and higher present values
assuming equal payments, interest rates and terms.
will always have lower future values and lower present values
assuming equal payments, interest rates and terms.
will always have higher present values and higher future values
assuming equal payments, interest rates and terms....

Future value: annuity versus annuity due
What's the future value of a 8%, 5-year ordinary annuity that
pays $600 each year? Round your answer to the nearest cent.
If this was an annuity due, what would its future value be?
Round your answer to the nearest cent.

Future Value: Ordinary Annuity versus Annuity
Due
What is the future value of a 7%, 5-year ordinary annuity that
pays $650 each year? Do not round intermediate calculations. Round
your answer to the nearest cent.
$
If this were an annuity due, what would its future value be? Do
not round intermediate calculations. Round your answer to the
nearest cent.
$

The present value of an ordinary annuity is an annuity due times
(1+r).
A. True
B. False

What is the future value of a 12-year ordinary annuity of $350
if the interest rate is 6.5%? What is the present value of the
annuity? Hint: Solve for PV. What is the future value and present
value if the annuity were an annuity due?

Matt is considering purchasing one of two annuities. The first
annuity, an ordinary annuity, will pay $1,000 at the end of each
quarter for 20 years. The second annuity, an annuity due, will pay
$1,000 at the beginning of each quarter for 20 years. Which of the
following statements is correct regarding these annuities?
A. The present value of an ordinary
annuity is equal to the present value of an annuity due.
B. An ordinary annuity has a higher
future...

is the present value of an ordinary annuity larger than the
present value of an annuity due?

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