What is the difference between an ordinary annuity and an annuity due as defined in the chapter?

An ordinary annuity has payments made at the end of each period, while an annuity due has payments made at the beginning of each period. This timing difference affects the total amount accumulated over time, with annuity due typically resulting in a higher future value due to earning interest for an additional period.

In finance, an ordinary annuity is defined as a series of equal payments made at the end of each period, whereas an annuity due consists of equal payments made at the beginning of each period. The key difference lies in the timing of the payments, which influences the total amount accumulated. Since each payment in an annuity due earns interest for one additional period compared to an ordinary annuity, the future value of an annuity due will always be greater than that of a similar ordinary annuity.