To find the present value of an annuity due, one could [blank].
A)find the present value of an ordinary annuity and add one extra payment
B)find the present value of an ordinary annuity but N=1 for the number of periods
C)find the present value of an ordinary annuity and divide by 1+i
D)find the present value of an ordinary annuity and multiply by 1+i

Question

Quizplus · Accepted Answer

An annuity due is an annuity whose payments are made at the beginning of each period. To find its present value, you start with the present value of an ordinary annuity (payments made at the end of each period) and adjust it to reflect the earlier payments. This adjustment involves multiplying by (1+i), where i is the interest rate per period, to account for the fact that each payment is made one period earlier than in an ordinary annuity.

To Find the Present Value of an Annuity Due, One