Question

Future Value: Ordinary Annuity versus Annuity Due

What is the future value of a 4%, 5-year ordinary annuity that pays $600 each year? Round your answer to the nearest cent.
$  

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

Answer 1

1)
Future Value of ordinary annuity				=	Annuity * Future Value of annuity of 1
				=	$           600	*	5.416323
				=	$ 3,249.79
Working:
Future Value of annuity of 1				=	(((1+i)^n)-1)/i			Where,
				=	(((1+0.04)^5)-1)/0.04			i	4%
				=	5.4163226			n	5
2)
Future Value of annuity due				=	Annuity * Future Value of annuity of 1
				=	$           600	*	5.632975
				=	$ 3,379.79
Working:
Future Value of annuity of 1				=	((((1+i)^n)-1)/i)*(1+i)			Where,
				=	((((1+0.04)^5)-1)/0.04)*(1+0.04)			i	4%
				=	5.6329755			n	5