Question

What's the future value of a 10%, 5-year ordinary annuity that pays $500 each year? If this was an annuity due, what would its future value be? Do not round intermediate calculations. Round your answers to the nearest cent. Future Value of an Ordinary Annuity:    Future Value of an Annuity Due:

Answer 1

Information provided:

Annuity= $500

Time= 5 years

Interest rate= 10%

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

The future value of an ordinary annuity can be computed with the help of a financial calculator. The calculator by default is the END mode, which is needed to calculate ordinary annuity values.

The future value can be computed by entering the below in a financial calculator:

PMT=500

I/Y= 10

N=5

Press CPT and FV to compute the future value.

The value obtained is 3,052.55.

The future value of an ordinary annuity is $3,052.55.

Annuity due refers to annuity that occurs at the beginning of a period.

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^nd BGN 2^nd SET on the Texas BA II Plus calculator.

The question can be solved using a financial calculator by entering the below into the calculator in BGN mode:

PMT=500

I/Y= 10

N=5

Press CPT and FV to compute the future value.

The value obtained is 3,357.81.

The future value of an annuity due is $3,357.81.

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