# 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?

#### Solution Preview

Solution is attached as MS Word document also.

Solution:

A) Ordinary annuity means that payments are made at the end of periods.

Equal periodic payments=C=$2500

Number of periods=n=10 years

Discount rate=i=8%

Sum of annuity=C/i*((1+i)^n-1)

=2500/8%*((1+8%)^10-1)

=$36216.41

B) Equal periodic payments=C=$500

Number of periods=n=6 years

Discount rate=i=12%

Sum of annuity=C/i*((1+i)^n-1)

=500/12%*((1+12%)^6-1)

=$4057.59

C) Equal periodic payments=C=$30000

Number of periods=n=5 years

Discount rate=i=20%

Sum of ...

#### Solution Summary

Solution describes the steps to calculate future value of ordinary annuity and annuity due.