I’m curious how to discern when to calculate accounting for an annuity due as opposed to an ordinary annuity. I’m assuming that anything due on a day that is not the last day of the year qualifies as “Annuity Due”. With that said, when questions say “the first payment will be paid one year from now…” as I’ve seen come up many times, is this phrasing inherently indicative of an annuity due? Thank you!
If you see “one year from today, 6 months from now, etc.”, that tells you it is an immediate annuity; if you see “today, now, etc.”, that tells you it is an annuity due.
If they ask you to compute the present value one period before the date of first payment, or the future value on the date of the last payment, treat it as an ordinary annuity.
If they ask you to compute the present value on the date of the first payment, or the future value one period after the date of the last payment, treat it as an annuity due.
If they ask you to compute the present value or the future value on any dates other than those mentioned above, you’re free to treat it as an ordinary annuity or as an annuity due, according to your personal preference.
Thanks for the clarity!
I think it is better to clarify such a question with the organization where you make the payment, if you make a mistake, there may be unpleasant consequences.