What is the future value of a 14-year ordinary annuity of $450 if the interest rate...

What is the future value of a 14-year ordinary annuity of $450 if the interest rate is 6%?

Q11b – What is the present value of the annuity? Hint: Solve for PV.

Q11c – What is the future value and present value if the annuity were an annuity due? Solve.

Solutions

Expert Solution

11b)

Future value = Annuity * [(1 + r)ⁿ - 1] / r

Future value of annuity = 450 * [(1 + 0.06)¹⁴ - 1] / 0.06

Future value of annuity =450 * 21.01507

Future value of annuity = $9,456.78

Present value of annuity = Annuity * [1 - 1 / (1 + r)ⁿ] / r

Present value of annuity = 450 * [1 - 1 / (1 + 0.06)¹⁴] / 0.06

Present value of annuity = 450 * [1 - 0.4423] / 0.06

Present value of annuity = 450 * 9.29498

Present value of annuity = $4,182.74

11c)

Future value of annuity due = (1 + r) * Annuity * [(1 + r)ⁿ - 1] / r

Future value of annuity due = (1 + 0.06) * 450 * [(1 + 0.06)¹⁴ - 1] / 0.06

Future value of annuity due = 1.06 * 450 * 21.01507

Future value of annuity due = $10,024.19

Present value of annuity due = (1 + r) * Annuity * [1 - 1 / (1 + r)ⁿ] / r

Present value of annuity due = (1 + 0.06) * 450 * [1 - 1 / (1 + 0.06)¹⁴] / 0.06

Present value of annuity due = 1.06 * 450 * [1 - 0.4423] / 0.06

Present value of annuity due = 1.06 * 450 * 9.29498

Present value of annuity due = $4,433.71

jeff jeffy answered 7 months ago

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