The present value of a lottery received as an annuity due is less than the present value of a lottery whose cash flows are received as an ordinary annuity.(Assume that the interest rate used to discount the cash flows is positive and equal between the two choices and that the magnitude and number of cash flows are equal for the two choices.Only the timing of the cash flows differs between the two choices.)

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An annuity due involves receiving payments at the beginning of each period, which means each payment is discounted for one less period compared to an ordinary annuity where payments are received at the end of each period. Therefore, the present value of an annuity due is higher than that of an ordinary annuity, assuming all other factors are equal.

The Present Value of a Lottery Received as an Annuity