Given identical current amounts owed and identical interest rates, annual payments of an ordinary annuity will be greater than annual payments of an annuity due.

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Quizplus · Accepted Answer

This is because payments for an annuity due occurs at the beginning of each period, whereas payments for an ordinary annuity occurs at the end of each period. Therefore, for an annuity due, each payment has an extra year of compounding, which means that the present value of the payments is smaller than for an ordinary annuity. To equalize the present values, the annual payments for an annuity due would need to be larger than for an ordinary annuity.

Given Identical Current Amounts Owed and Identical Interest Rates, Annual