Why does an annuity due have a higher present value than an ordi-
nary annuity?
If you know the present value of an ordinary annuity, how could
you find the PV of the corresponding annuity due?
What is the PVA of an ordinary annuity with 10 payments of $100 if
the appropriate interest rate is 10 percent? What would PVA be if the
interest rate were 4 percent? What if the interest rate were 0 percent?
How would the PVA values differ if we were dealing with annuities
due? ($614.46; $811.09; $1,000.00; $675.90; $843.53; $1,000)
Assume that you are offered an annuity that pays $100 at the end of
each year for 10 years. You could earn 8 percent on your money in
other investments with equal risk. What is the most you should pay
for the annuity? If the payments began immediately, how much
would the annuity be worth? ($671.01; $724.69)
