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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Distinguish between the present value of an ordinary annuity and the present value of an annuity due. Draw a time line of each.

To determine

Differentiate present value of an ordinary annuity and the present value of an annuity due and draw the time for each.

Explanation

Present Value: The value of today’s amount expected to be paid or received in the future at a ­­­compound interest rate is called as present value.

 Annuity: An annuity is referred as a sequence of payment of fixed amount of cash flows that occurs over the equal intervals of time.  Cash flow occurs during the first day of each time period is known as an annuity due, whereas cash flow occurs during the last day of each time period is known as an ordinary annuity...

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