Question

Future Value: Ordinary Annuity versus Annuity Due

What is the future value of a 7%, 5-year ordinary annuity that pays $650 each year? Do not round intermediate calculations. Round your answer to the nearest cent.

$  

If this were an annuity due, what would its future value be? Do not round intermediate calculations. Round your answer to the nearest cent.

$  

Answer 1

FVOrdinary Annuity = C*(((1 + i/100)^n -1)/(i/100))

C = Cash flow per period

i = interest rate

n = number of payments

FV= 650*(((1+ 7/100)^5-1)/(7/100))

FV = 3737.98

Using Calculator: press buttons "2ND"+"FV" then assign

PMT =-650

I/Y =7

N =5

PV = 0

CPT FV

Using Excel

=FV(rate,nper,pmt,pv,type)

=FV(7/(100),5,-650,,)

FVAnnuity Due = c*(((1+ i/100)^n - 1)/i)*(1 + i/100)

C = Cash flow per period

i = interest rate

n = number of payments

FV= 650*(((1+ 7/100)^5-1)/(7/100))*(1+7/100)

FV = 3999.64

Using Calculator : Press buttons : "2ND"+"PMT"+"2ND"+"ENTER"+"2ND"+"CPT" then assign

PMT =-650

I/Y =7

N =5

PV = 0

CPT FV

Using Excel

=FV(rate,nper,pmt,pv,type)

=FV(7/(100),5,-650,,1)