You are scheduled to receive annual payments of $10,000 for each of the next 25 years.Your discount rate is 8.5 percent.What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?

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Quizplus · Accepted Answer

The present value of an annuity due is greater than the present value of an ordinary annuity because the payments are received at the beginning of each period rather than at the end. The difference in the present value between an annuity due and an ordinary annuity is equal to the present value of one payment. In this case, the present value of one payment is $10,000 / (1 + 0.085) = $9,217. Therefore, the difference in the present value between receiving the payments at the beginning of each year and receiving them at the end of each year is $9,217.

You Are Scheduled to Receive Annual Payments of $10,000 for Each