Question

FUTURE VALUE: ANNUITY VERSUS ANNUITY DUE

1. What's the future value of a 6%, 5-year ordinary annuity that pays $200 each year? Round your answer to the nearest cent.

$  

2. If this was an annuity due, what would its future value be? Round your answer to the nearest cent.

$  

Answer 1

a.Information provided:

Annuity= $200

Time= 5 years

Interest rate= 6%

Ordinary annuity refers to the annuity payment that occurs at the end of the period.

Enter the below in a financial calculator to compute the future value of ordinary annuity:

PMT= -200

N= 5

I/Y= 6

Press the CPT key and FV to compute the future value of ordinary annuity. annuity due.

The value obtained is 1,127.42.

Therefore, the uture value of ordinary annuity is $1,127.42.

b.Information provided:

Annuity= $200

Time= 5 years

Interest rate= 6%

This can be solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode. Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^ndBGN 2^ndSET on the Texas BA II Plus calculator.

Enter the below in a financial calculator to compute the future value of annuity due:

PMT= -200

N= 5

I/Y= 6

Press the CPT key and FV to compute the future value of annuity due.

The value obtained is 1,195.06.

Therefore, the future value of annuity due is $1,195.06.