Question

Find the future values of these ordinary annuities. Compounding occurs once a year.

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. Rework parts a, b, and c assuming they are annuities due

Answer 1

Future value of annuity=Annuity[(1+rate)^time period-1]/rate

1.Future value=$400[(1.1)^10-1]/0.1

=$400*15.9374246

which is equal to

=$6374.97(Approx).

2.Future value=$200[(1.05)^5-1]/0.05

=$200*5.52563125

which is equal to

=$1105.13(Approx).

3.Future value=$400*5

=$2000

Future value of annuity due=Future value of annuity* (1+rate)

4.Future value=$6374.97*1.1

which is equal to

=$7012.47(Approx).

5.Future value=$1105.13*1.05

which is equal to

=$1160.38(Approx).

6.Future value=$400*5

=$2000