Question

Regarding the present value of an annuity, the present value of an annuity due will always be worth less compared to the present value of an ordinary annuity.
a) true
b) false

Answer 1

Answer: false

Explanation:

Annuity due is an annuity whereby the payment is normally due at the beginning of every period which can be annually, semi annually, monthly, or quarterly. Examples of payments with annuity due include rents and, leases.

In ordinary annuity, the main difference is that the payments have to be made at the end of every period.

It should be noted that the present value of an annuity due is typically worth more when it is compared to the present value of ordinary annuity.