Why is the future value of annuity due always greater than the future value of an...

Why is the future value of annuity due always greater than the future value of an ordinary annuity assuming everything equals 2?

Why the present value of an annuity due is always greater that than the future value of an ordinary annuity assuming everything else equals?

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Expert Solution

The only difference between ordinary annuity and annuity due is that the payments occur at the beginning of each period under annuity due while they occur at the end of each period under ordinary annuity

hence, one period extra interest is earned in case of annuity due when compared to ordinary annuity while calculating the future value. Also, one period less discounting in annuity due while calculating present value.

Therefore, future value as well as present value of annuity due is greater than those of ordinary annuity.

jeff jeffy answered 1 year ago

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