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How is an annuity due similar to an ordinary annuity (how is it different) ?
How is an annuity due similar to an ordinary annuity (how is it different)? Explain why an n-period annuity due is exactly the same as an "(n-1) period ordinary annuity plus an extra payment at time zero. Given this, explain how you could compute the PV of an n-period annuity due using the normal = ordinary annuity settings of a financial calculator. Note: This idea is really getting at the fundamental concept of viewing cash flow streams as represented in a time line and solving that time line and not "memorizing" specific cases, such as an annuity due case. Given this, one can solve most annuity due situations by drawing the time line and simply making adjustments and using the ordinary annuity functions.
