If the present value of an ordinary, 4-year annuity is $1,000 and interest rates are 6 percent, what is the present value of the same annuity due?
A) $943.40
B) $1,000.00
C) $1,040.00
D) $1,060.00

Question

Quizplus · Accepted Answer

The present value of an annuity due is higher than that of an ordinary annuity because payments are received at the beginning of each period, allowing each payment to accrue interest for an additional period. To find the present value of the annuity due, you multiply the present value of the ordinary annuity by (1 + interest rate). Therefore, $1,000 * (1 + 0.06) = $1,060.

If the Present Value of an Ordinary, 4-Year Annuity Is