Final answer:
An annuity due earns more interest than an ordinary annuity of equal time. This statement is true.
Step-by-step explanation:
An annuity due earns more interest than an ordinary annuity of equal time. This statement is true.
An annuity is a series of equal payments made at regular intervals. In an ordinary annuity, the payments are made at the end of each period, while in an annuity due, the payments are made at the beginning of each period. Due to the time value of money, money received earlier is worth more than money received later.
For example, if you invest $1000 in an ordinary annuity at an interest rate of 5% per year, you would earn interest on each payment starting from the end of the first period. However, if you invest the same amount in an annuity due, you would start earning interest on each payment starting from the beginning of the first period. This extra time for the interest to compound results in more interest earned in an annuity due compared to an ordinary annuity of equal time.