How does the present value of an annuity compare to the present value of an annuity due?
To calculate the present value of an annuity, it is discounted by the interest rate.
In an ordinary annuity, the payments are received at the end of the period. When these are discounted using the interest rate, the present value is lower than if the cash flows are received at the beginning of the period.
In case of an annuity due, the payments are received at the beginning of the period. While discounting them, we will receive a higher present value than an annuity due.
Therefore,
Present value of annuity < Present value of annuity due
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