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How can you convert the present value of an ordinary annuity into the present value of annuity due?

Answer:

The simplest way is to gross up the ordinary annuity (payments in arrears) by a single period at the discounting rate.

For example, if the ordinary annuity has semi-annual payments (half yearly) and the PV is $1000 using a discounting rate of 5% p.a., then the PV of the annuity due would be:

PVDue= $1,000 x ( 1 + 5%/2 ) = $1,025

First answer by Andrewdoyle. Last edit by Andrewdoyle. Contributor trust: 55 [recommend contributor recommended]. Question popularity: 22 [recommend question].

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