Question

What is the future value of a 12-year ordinary annuity of $350 if the interest rate is 6.5%? What is the present value of the annuity? Hint: Solve for PV. What is the future value and present value if the annuity were an annuity due?

Answer 1

Future value of a 12 year ordinary annuity of $ 350 at 6.5 % = Annuity x [ { ( 1 + r ) ⁿ - 1 } / r ] = $ 350 x [ { ( 1.065 ) ¹² - 1 } / 0.065 ] = $ 6,079.75

Future value of annuity due of $ 350 for 12 years at 6.5 % = Future value of ordinary annuity x ( 1 + r ) = $ 6,079.75 x 1.065 = $ 6,474.93

Present value of ordinary annuity of $ 350 for 12 % at 6.5 % = Annuity x [ { 1 - ( 1 / ( 1 + r ) ⁿ } / r ] =

$ 350 x [ { 1 - ( 1 / 1.065 ) ¹² } / 0.065 ] = $ 2,855.55

Present value of annuity due of $ 350 for 12 years at 6.5 % = $ 2,855.55 x 1.065 = $ 3,041.16