For a given discount rate, an ordinary annuity and an annuity due have the same present value.

Question

Quizplus · Accepted Answer

An annuity due has its payments occur at the beginning of each period, while an ordinary annuity has its payments occur at the end of each period. Because the payments of an annuity due occur one period earlier than the payments of an ordinary annuity, the present value of an annuity due will always be higher than the present value of an ordinary annuity, assuming the same interest rate and number of periods. Therefore, for a given discount rate, an ordinary annuity and an annuity due will have different present values.

For a Given Discount Rate, an Ordinary Annuity and an Annuity