Question

Find the present value of the following ordinary annuities:

a). $400 per year for 10 years at 10%

b). $200 per year for 5 years at 5%

c). $400 per year for 5 years at 0%

d). Now rework parts a,b,c assuming that payments are made at the beginning of each year; that is, they are annuities due.

Answer 1

In the ordinary annuity payment is made at the end of the period and in the annuity due payment is made at the beginning of the year.

Present value of ordinary annuity for all payment is calculated in excel and screen shot provided below:

d.

Now, present value of annuity due is calculated in excel and screen shot provided below: