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Guilherme Mazui

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What is the Difference Between Ordinary Annuity and Annuity Due?

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The main difference between an ordinary annuity and an annuity due lies in the timing of the payments. Here are the key differences:

  1. Ordinary Annuity: In an ordinary annuity, payments are made at the end of each period, such as monthly or quarterly. Examples of ordinary annuities include interest payments from bonds and loan payments. An ordinary annuity has one less payment than an annuity due, and its present value is lower than that of an annuity due, all else being equal.
  2. Annuity Due: In an annuity due, payments are made at the beginning of each period. Examples of annuities due include rent payments and subscription fees. An annuity due has one more payment than an ordinary annuity, and its present value is higher than that of an ordinary annuity, all else being equal.

In summary:

  • Ordinary annuities make payments at the end of each period.
  • Annuity due makes payments at the beginning of each period.
  • The present value of an annuity due is higher than that of an ordinary annuity, all else being equal.

The type of annuity that suits you depends on your situation and preferences. It is essential to consult with a financial advisor to determine which type of annuity makes the most sense for you.

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  • What is the Difference Between Ordinary Annuity and Annuity Due?
  • Comparative Table: Ordinary Annuity vs Annuity Due

    • Comparative Table: Ordinary Annuity vs Annuity Due

    Here is a table that highlights the differences between an ordinary annuity and an annuity due:

    Feature Ordinary Annuity Annuity Due
    Payment Timing Payments are made at the end of each period Payments are made at the beginning of each period
    Present Value Lower present value because payments are made after the period Higher present value because payments are made before the period
    Risk Level Less risky for the payer, as payments are made after the period has passed Riskier for the payer, as payments are made before the period has passed
    Suitable for Payers, as they make payments after receiving the benefit of the period Payees, as they receive payments before providing the benefit of the period
    Examples Mortgage payments, insurance premiums Rent payments, subscription fees

    In summary, an ordinary annuity is characterized by payments made at the end of each period, making it less risky for the payer. On the other hand, an annuity due involves payments made at the beginning of each period, making it riskier for the payer but more suitable for the payee.

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    Guilherme Mazui

    Guilherme Mazui is graduated in journalism from the Federal University of Minas Gerais (UFMG) and a master's degree in Communication from the University of São Paulo (USP). In addition, he has experience in advertising writing and has worked as a content editor in several companies.