Calculating Annuities Due As discussed in the text, an ordinary annuity assumes equal payments at the end

Question:

Calculating Annuities Due As discussed in the text, an ordinary annuity assumes equal payments at the end of each period over the life of the annuity. An annuity due is the same thing except the payments occur at the beginning of each period instead. Thus, a three-year annual annuity due would ha e periodic payment cash flows occurring at years 0, 1. and 2, whereas a three-year annual ordinary annuity would have periodic payment cash flows occurring at years 1, 2, and 3.

a. At a 9.5 percent annual discount rate, find the present value of an eight-year ordinary annuity contract of $950 payments.

b. Find the present value of the same contract if it is an annuity due.

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...