Why the timing of your payments changes your wealth
In short: Discover the fundamental difference between ordinary annuities and annuities due. This video explains how the specific moment you make a recurring payment dictates how much interest your money accumulates over time.
The video explores the mechanics of financial mathematics, specifically focusing on how interest compounds differently based on payment timing. It distinguishes between an ordinary annuity, where payments occur at the end of each compounding period, and an annuity due, where payments are made at the start of each period.
Understanding this distinction is vital because every payment in an annuity due benefits from an additional period of compounding. Consequently, the future value of an annuity due is higher, resulting in a growth graph that sits above that of an ordinary annuity.
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Sources
- Summary by Intellect · source: Calculating future value of annuity | Financial mathematics (TX TEKS) | Khan Academy
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