General Studies · Time Value of Money
Which of the following best describes the structural difference between an Ordinary Annuity and an Annuity Due and the resulting impact on their respective Future Values?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1There is no mathematical difference in the future value of the two types of annuities as long as the total number of payments remains the same.
- 2An Ordinary Annuity involves payments at the end of each period, and it always results in a higher future value because the final payment is larger.
- 3An Annuity Due involves payments at the beginning of each period, resulting in a higher future value because every payment earns interest for one additional period.✓
- 4An Ordinary Annuity involves payments at the beginning of each period, resulting in a higher future value due to one less period of compounding.
Correct answer
An Annuity Due involves payments at the beginning of each period, resulting in a higher future value because every payment earns interest for one additional period.
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