Question

1. You have $5,100 to invest today at 11​% interest compounded annually. Find how much you will have accumulated in the account at the end of​: (0.5 Marks each)

(1) 4 years,

(2) 8 years, and​

(3) 12 years.

1. Using the values​ below, answer the questions that follow:

Amount of annuity	Interest rate	Deposit period​ (years)
​$500	9​%	10

1. Calculate the future value of the​ annuity, assuming that it is
   1. ​An ordinary annuity. (0.5 marks)
   2. ​An annuity due. (0.5 marks)

2. Compare your findings in parts a​(1) and a​(2). All else being​ identical, which type of annuity—ordinary or annuity due—is preferable as an​ investment? Explain why. (0.5 Marks)

Answer 1

Amount to Invest = 5100.

Interest rate = 11% p.a.

Below parts can be solved easily using EXCEL

1. At the end of 4 years

=FV(11%,4,0,-5100) => 7,742.16

2. At the end of 8 years

=FV(11%,8,0,-5100) => 11,753.14

3. At the end of 12 years

=FV(11%,12,0,-5100) => 17,842.10

a. Future Value of annuity =

Assuming ordinary annuity

=FV(9%,10,-500) => 7596.46 is the future value of annuity

Assuming annuity due

=FV(9%,10,-500,0,1) => 8,280.15 is the future value of annuity.

b. As we can see annuity due has resulted in higher future value because there is more compounding done because of investment being made at the beginning of period.

Please Upvote and Support!!