An annuity due must have a present value at least as large as an equivalent ordinary annuity.

Question

Quizplus · Accepted Answer

This is true because an annuity due has payments occurring at the beginning of each period, while an ordinary annuity has payments occurring at the end of each period. This means that the cash flows of an annuity due are shifted one period earlier than those of an ordinary annuity, resulting in a higher present value for the annuity due. As such, the present value of an annuity due should always be at least as large as the present value of an equivalent ordinary annuity.

An Annuity Due Must Have a Present Value at Least