Is it possible to convert a PRESENT value of an ordinary annuity table to the present value of an annuity due table?

A. No. There is no alternative approach for calculating the present value of an annuity due. The present value of an annuity due table requires a discount schedule where we discount each payment back to its PV. It is not possible to take an ordinary annuity and take the first payment made at the beginning of the first period and discount it back to the start date. Recall that annuity due payments are made at the end of the period and therefore cannot be discounted in the payment period to which they apply.

 

B. The only way to calculate the present value of an annuity due is to use an ordinary annuity computation and then add one payment to the result.

 

C. There are several alternative approaches for calculating the present value of an annuity due. (1) Use an ordinary annuity computation for (n - 1) and then add one payment to the result (i.e., add +1.0000 to the table discount factor). There is one less discount period for an annuity due, so we use one less period than an ordinary annuity. We add 1.0000 to the table factor in order to account for the first payment that is received but is not discounted. (2) Discount the ordinary annuity. 

 

D. There are several alternative approaches for calculating the present value of an annuity due. (1) Use an ordinary annuity computation for (n - 1) and then add one payment to the result (i.e., add +1.0000 to the table discount factor). There is one less discount period for an annuity due, so we use one less period than an ordinary annuity. We add 1.0000 to the table factor in order to account for the first payment that is received but is not discounted. (2) Multiply the ordinary annuity factor or the PV of the ordinary annuity by (1 + i). The logic in this case is that the present value of the annuity due is received one period before the ordinary annuity and the amount of the present value of the ordinary annuity can be invested for one additional period.

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