To compute the present or future value of an annuity due, one computes the value of an ordinary annuity and then
A) multiplies it by (1 + i).
B) divides it by (1 + i).
C) multiplies it by (1 − i).
D) divides it by (1 − i).

Question

Quizplus · Accepted Answer

An annuity due is an annuity for which the cash flows occur at the beginning of each period. To compute its present or future value, one first computes the value as if it were an ordinary annuity (where cash flows occur at the end of each period) and then adjusts this value to account for the earlier payments by multiplying it by (1 + i), where i is the interest rate per period. This adjustment accounts for the additional period of interest accumulation or discounting.

To Compute the Present or Future Value of an Annuity