To determine the future value factor for an annuity due for period n when given tables only for an ordinary annuity:
A) Obtain the FVA factor for n + 1 and deduct 1.
B) Obtain the FVA factor for n and deduct 1.
C) Obtain the FVA factor for n - 1 and add 1.
D) Obtain the FVA factor for n + 1 and add 1.

Question

Quizplus · Accepted Answer

An annuity due is simply an ordinary annuity with payments made at the beginning of each period instead of at the end. Therefore, the future value of an annuity due will always be greater than the future value of an ordinary annuity with the same payments and interest rate. 
To determine the future value factor for an annuity due for period n when given tables only for an ordinary annuity, we can use the formula FVAD=FVOA(1+i), where FVAD is the future value of an annuity due, FVOA is the future value of an ordinary annuity, i is the interest rate, and the parentheses indicate multiplication. 
We want to find the FVAD factor, which represents the future value of an annuity due per dollar of payment. We can rearrange the formula as FVAD/FVOA = 1+i and then solve for FVAD/FVOA. We can then use the future value factor for an ordinary annuity to find the future value factor for an annuity due.
Therefore, we need to obtain the FVA factor for n + 1 and deduct 1 to account for the extra period of compounding in an annuity due. This gives us the FVAD factor for period n.

To Determine the Future Value Factor for an Annuity Due