Why is annuity due higher than ordinary annuity?
Consequently, what is the difference between annuity and ordinary annuity?
An annuity is a series of payments at a regular interval, such as weekly, monthly or yearly. The payments in an ordinary annuity occur at the end of each period. In contrast, an annuity due features payments occurring at the beginning of each period.
Similarly, what is an annuity due? An annuity due is a repeating payment that is made at the beginning of each period, such as a rent payment. It has the following characteristics: All payments are in the same amount (such as a series of payments of $500). All payments are made at the same intervals of time (such as once a month or year).
Keeping this in view, how do you calculate annuity due from ordinary annuity?
An annuity due is calculated in reference to an ordinary annuity. In other words, to calculate either the present value (PV) or future value (FV) of an annuity-due, we simply calculate the value of the comparable ordinary annuity and multiply the result by a factor of (1 + i) as shown below
How does the present value of an annuity compare to the present value of an annuity due?
In ordinary annuities, payments are made at the end of each time period. With annuities due, they're made at the beginning. The future value of an annuity is the total value of payments at a specific point in time. The present value is how much money would be required now to produce those future payments.