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A. Ans: To Find The Future Value of Annuity Ordinary and Annuity Due We Need To

Time value—Annuities Marian Kirk wishes to select the better of two 5-year annuities, C and D. Annuity C is an ordinary annuity of $2,500 per year for 5 years. Annuity D is an annuity due of $2,200 per year for 5 years.

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Sadia Binte Nazim
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191 views

A. Ans: To Find The Future Value of Annuity Ordinary and Annuity Due We Need To

Time value—Annuities Marian Kirk wishes to select the better of two 5-year annuities, C and D. Annuity C is an ordinary annuity of $2,500 per year for 5 years. Annuity D is an annuity due of $2,200 per year for 5 years.

Uploaded by

Sadia Binte Nazim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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A.

Ans: To find the future value of annuity ordinary and annuity due we need to
use these following formulas:

FVn= PMT x [(1+i) ^n-1/i]

FVn= PMT x [(1+i) ^n-1/i] x (1+i)

Here,

PMT= payment

i= interest rate

n = number of years

FVn= future value of annuity

1.
Annuity C:
Since annuity C is an ordinary annuity, we need to use this following formula:

FVn= PMT x [(1+i) ^n-1/i] here, PMT= 2500

FVn= 2500 x [(1+.1) ^5-1/ .1] i= 10%


= 2500 x 6.1051 n=5 years
=$15,262.5
Annuity D:
Since annuity D is an annuity due here, we need to use this following formula:

FVn= PMT x [(1+i) ^n-1/i] x (1+i) here, PMT= 2200

FVn= 2200 x [(1+.1) ^5-1/ .1] x (1+.1) i= 10%


= 2200 x 6.1051 x 1.1 n=5 years
=$14,774.342

2.
Annuity C:
Since annuity C is an ordinary annuity, we need to use this following formula:
FVn= PMT x [(1+i) ^n-1/i] here, PMT= 2500

FVn= 2500 x [(1+.2) ^5-1/ .2] i= 20%


= 2500 x 7.4416 n=5 years
=$18,604
Annuity D:

Since annuity D is an annuity due here, we need to use this following formula:

FVn= PMT x [(1+i) ^n-1/i] x (1+i) here, PMT= 2200


FVn= 2200 x [(1+.2) ^5-1/ .2] x (1+.2) i= 20%
= 2200 x 7.4416 x 1.2 n=5 years
=2200x 8.92992
=$19,645.832

B. Ans: Using my findings in part A to indicate, in “1” Annuity C presents a greater


future and in “2” annuity D presents great future value.

C. Ans: Showing the future value of ordinary and due through time line on
the above solutions:
1. Annuity C
Finding future value of ordinary annuity by time line:
To calculate future value of annuity ordinary, the formula we have to use is,

FVn= PMT x [(1+i) ^n-1/i]

PMT= payment

i= interest rate

n = number of years

FVn= future value of annuity

Here,

FVn= 2500 x [(1+.1) ^5-1/ .1]


= 2500 x 6.1051
=$15,262.5
Annuity D
Finding future value of annuity due by time line:
To calculate future value of annuity due, the formula we have to use is,

FVn= PMT x [(1+i) ^n-1/i] x (1+i)

PMT= payment

i= interest rate
n = number of years

FVn= future value of annuity

Here,

FVn= 2200 x [(1+.1) ^5-1/ .1] x (1+.1)


= 2200 x 6.1051 x 1.1
=$14,774.342

2. Annuity C

Finding future value of ordinary annuity by time line:


to calculate future value of annuity ordinary, the formula we have to use is,

FVn= PMT x [(1+i) ^n-1/i]

PMT= payment
i= interest rate

n = number of years

FVn= future value of annuity

Here,

FVn= 2500 x [(1+.2) ^5-1/ .2]


= 2500 x 7.4416
=$18,604

Annuity D
Finding future value of annuity due by time line:
To calculate future value of annuity due, the formula we have to use is,

FVn= PMT x [(1+i) ^n-1/i] x (1+i)

PMT= payment

i= interest rate

n = number of years

FVn= future value of annuity

Here,

FVn= 2200 x [(1+.2) ^5-1/ .2] x (1+.2)


= 2200 x 7.4416 x 1.2
=2200x 8.92992
=$19,645.832

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