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An ordinary annuity has an interest rate of 10% and a future value of 80.00. What...

An ordinary annuity has an interest rate of 10% and a future value of 80.00. What would be the future value of this same annuity, if it were an annuity due instead of a regular annuity? The future value of this annuity due is $

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Answer #1

In case of ordinary annuity the payments are made at the end of each period where as in case of Annuity Due the payments are made at the beginning of each period.Hence annuity due always has an extra period compared to a regular annuity.

So to convert a Future Value of a regular annuity to a Future Value of a annuity due we need to compound the FV of regular annuity by an additional period.

Calculation

Interest Rate= 10%

Future Value of ordinary annuity=$80

The Future Value of the annuity due would be=Future Value of Ordinary Annuity compounded by an additional period.

=$80*1.1=$88

Answer: The future value of the annuity due is $88

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