Question

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.

none of the above.

Answer 1

An annuity due makes payments at the beginning of every period. This results in a higher present value and a lower future value.

Comparatively, in an ordinary annuity, the payments are made at the end of the period. This results in a lower present value and a higher future value.

When comparing an annuity due to an ordinary annuity, an annuity due-

will always have lower future values and higher present values assuming equal payments, interest rates, and terms.

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