Question

1. What's the future value of a 10%, 5-year ordinary annuity that pays $200 each year? Round your answer to the nearest cent.

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

Answer 1

1.Future value of annuity=Annuity[(1+rate)^time period-1]/rate

=200[(1.1)^5-1]/0.1

=200*6.1051

=$1221.02

2.Future value of annuity due=Future value of annuity*(1+rate)

=1221.02*1.1

=$1343.12(Approx).