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Calculating FV's of ordinary annuity and annuity due

For each case in the table, answer the questions that follow.

Case-- Amt. of Annuity-- Int. Rate-- Deposit(yrs)--
A-- $2500-- 8%-- 10--
B-- 500-- 12- 6--
C-- 30,000-- 20-- 5--
D-- 11,500-- 9-- 8--
E-- 6,000-- 14-- 30--

a. Calculate the future value of the annuity assuming that it is
1. an ordinary annuity
2. an annuity due

b. Compare your findings in parts a.1. and a.2. All else being identical, which type of annuity-ordinary or annuity due-is preferable? Explain why.

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Solution Preview

Please refer attached Excel file for complete details. Work done with the help of equation writer may not print here.


FV Factor for an ordinary annuity =

FV of annuity due = FV of ordinary annuity*(1+i)
By applying above formula, we get following values

Case ...

Solution Summary

Solution describes the steps in calculating Future values of ordinary annuity and annuity due for different cases. Future value of ordinary annuity and annuity due is compared.