Question

If Mike would like to know how much to deposit at the end of each month for the next ten years so that he will have enough money saved to purchase a home in ten years’ time. What time value of money concept should he use for computations?

Select one:

a. Present value of an annuity ordinary annuity.

b. Future value of annuity due.

c. Future value of an ordinary annuity.

d. Present value of a single sum (lump sum)

Answer 1

annuity due is payments made at the beginning of the each month and ordinary annuity is payment made at the end of each month. since money has to be deposited at the end of each month so it will be ordinary annuity. present value of ordinary annuity is how much is required now to produce those desired results in future. thus Mike needs to calculare present value of ordinary annuity (A) option. to calculate how much should be deposit at the end of each month so as to enable to buy a house .