What is the relationship between the present value factor of an ordinary annuity and the present value factor of an annuity due for the same interest rate?
A) The ordinary annuity factor is not related to the annuity due factor.
B) The annuity due factor equals one plus the ordinary annuity factor for n-1 periods.
C) The ordinary annuity factor equals one plus the annuity due factor for n+1 periods.
D) The annuity due factor equals the ordinary annuity factor for n+1 periods minus one.

Question

Quizplus · Accepted Answer

The present value factor of an annuity due is always greater than the present value factor of an ordinary annuity for the same interest rate and time periods. Specifically, the annuity due factor equals one plus the ordinary annuity factor for n periods. Therefore, choice B is correct. The other choices are incorrect.

What Is the Relationship Between the Present Value Factor of an Ordinary