Given a positive interest rate and a positive cash flow,an annuity due always has a greater present value than an ordinary annuity of the same size and number of cash flows.

Question

Quizplus · Accepted Answer

An annuity due involves cash flows at the beginning of the period, while an ordinary annuity involves cash flows at the end of the period. Because of the time value of money, a dollar received today is worth more than a dollar received in the future. Therefore, the cash flows in an annuity due are worth more than those in an ordinary annuity, resulting in a higher present value.

Given a Positive Interest Rate and a Positive Cash Flow,an