Question

Is this statement true or false? If you calculated the value of an ordinary annuity, you could find the value of the corresponding annuity due by multiplying the FV of the ordinary annuity by (1 + I), because this would take into account that each annuity due payment occurs one year earlier.

Answer 1

Answer:

True

Explanation:

There are two types of annuity, ordinary annuity and annuity due.

The ordinary annuity is calculated as:

Future Value  = $Principal \times \frac{(1+ i)^n - 1}{i}$

Whereas Future Value of annuity due is calculated as:

Future Value = (1 + i) $\times$ $Principal \times \frac{(1+ i)^n - 1}{i}$

That is (1+i) $\times$ Future Value of ordinary annuity.

Therefore, the provided statement is true.