In comparing an ordinary annuity and an annuity due,which of the following is TRUE?
A)The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity.
B)The future value of an ordinary annuity is always greater than the future value of an otherwise identical annuity due.
C)The present value of an annuity due is always less than the future value of an otherwise identical ordinary annuity,since one less payment is received with an annuity due.
D)All things being equal,one would prefer to receive an ordinary annuity compared to an annuity due.

Question

Quizplus · Accepted Answer

The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity due to the fact that payments are made at the beginning of each period and have a longer time to compound. Therefore, option A is the correct choice. Option B is false, and Option C is incorrect because it confuses the present value with the future value. Option D is also incorrect because receiving payments earlier may be more valuable to some individuals.

In Comparing an Ordinary Annuity and an Annuity Due,which of the Following