Present Value of an Annuity Due If the present value of an ordinary, 4-year annuity is $1,000 and interest rates are 6 percent, what's 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 made at the beginning of each period. To find the present value of an annuity due, multiply the present value of the ordinary annuity by (1 + interest rate). Here, $1,000 * (1 + 0.06) = $1,060.00.

Present Value of an Annuity Due If the Present Value