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# Future Value of Annuities: Ordinary Annuity and Annuity Due

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Find the future value of the following annuities. The first payment in these annuities is made at the end of year one. That is, they are are ordinary annuities.

A) \$400 per years for 10 years at 10%
B) \$200 per year for 5 years at 5%
C) \$400 per year for 5 years at 5%
D) Now rework parts a and b and c assuming that payments are made at the beginning of each year; that is they are annuities due

#### Solution Preview

Find the future value of the following annuities. The first payment in these annuities is made at the end of year one. that is, they are are ordinary annuities.

A) \$400 per years for 10 years at 10%

FVA = W x (1 + i)n - 1 where FVA is the future value
i W is the amount required to deposit ...

#### Solution Summary

This solution is comprised of a detailed explanation to a multiple choice question about calculating the future value of the following annuities.

\$2.19

## Calculating Future Value of ordinary annuity and annuity due

Future Value of annuity : For each case in the accompanying table, answer the question that follow.
Amount of Interest Deposit period
Case annuity rate (years)
A \$ 2,500 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 finding 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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