Question

What is the difference between ordinary annuities and annuities due? How to use Excel® to evaluate annuities?

Answer 1

Solution:

The main difference between ordinary annuities and annuities due are, under ordinary annuities payments occur at the end of period, however under annuities due, payment occur at the beginnin of the period.

The excel could be used to find out present value and future value of annuity.

We use following formula for Present value and future value in excel.

Present value formula = "=PV(rate,nper,pmt,fv,type)"

where rate = rate of interest per period

Nper = Nos of payments period

Pmt = Payment made each period

FV = FV is the future value or a cash balance you want to attain after the last payment is made

Type = For payment at beginning of period type is "1" and for payment at end of period type is "0"

Future value formula ="=FV(rate,nper,pmt,pv,type)"

where rate = rate of interest per period

Nper = Nos of payments period

Pmt = Payment made each period

PV = PV is the present value or the lumpsum amount that a series of future payment is worth now

Type = For payment at beginning of period type is "1" and for payment at end of period type is "0"