Why “present value” of the “annuity” is higher than “normal” annuity?
Why is the current value of the premium is higher than the ordinary annuity? To answer this question, let’s look at the same time understanding the difference between these two.
Annuity due annuity payment stream is fixed that at the beginning of each period (annuity in advance). Example, there is a need to pay the rent when first beginning this month, and then on the first day of each month thereafter.
Normal annuity stream of fixed payments at the end of each time period (at the end of the annuity/annuity arrears). For example, running bonds typically pay coupon payments at the end of every six months until maturity of the bonds.
Because annuities owed to do early, then the due date of each batch will be accumulated each year. This means when we perform calculations with the present value (at the moment), each annuity payment is usually discounted for one year or less. This makes as the present value of the annuity due annuity return greater than normal.
Present value of an ordinary annuity of less than the annuity due to more back to discount future payments, low current value: each payment or annuity cash flow normal to happen one other time in the future.
Why present value of the annuity is higher than normal annuity?
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