Compare present value (PVA) and future values of annuities (FVA). How does their

Question

Compare present value (PVA) and future values of annuities (FVA). How does their value compare if payments are in advance or arrears?

PVA and FVA both always have a higher value if payments are in advance, all other factors equal.

PVA has higher value with payments in advance, while FVA has higher value with payments in arrears, all other factors equal.

PVA has lower value with payments in advance, while FVA has lower value with payments in arrears, all other factors equal.

Both always have a higher value with payments in arrears.

PVA and FVA both always have a higher value if payments are in advance, all other factors equal.

PVA has higher value with payments in advance, while FVA has higher value with payments in arrears, all other factors equal.

PVA has lower value with payments in advance, while FVA has lower value with payments in arrears, all other factors equal.

Both always have a higher value with payments in arrears.

Explanation / Answer

Option A PVA and FVA both always have a higher value if payments are in advance, all other factors equal. Since, Early payments will be less effected by the lower discounting factor thus increasing the Present Value and also Early payments will be more affected by the higher compounding factor thus increasing the Future Value.

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