An annuity is a series of payments that are made at equal intervals. For instance when you make monthly home mortgage payments this is an annuity. Or if you make regular deposits to your savings account then it will again be an annuity. The difference between ordinary annuity and annuity due is that in case of ordinary annuity the payments occur at the end of each period while in case of annuity due the payments occur at the beginning of each period. Present value of an ordinary annuity = P*[(1-(1+r)^(-n))/r]. For computing the present value of an annuity due we simply add the immediate cash flow to the present value of ordinary annuity. Thus present value of annuity due = P + P*[(1-(1+r)^(-n))/r]. The formula for future value of ordinary annuity = P[(1+r)^n – 1]/r. While computing the future value of annuity due we simply multiply the formula of ordinary annuity with (1+r). Hence future value of annuity due = (1+r)* P[(1+r)^n – 1]/r. Thus present value of annuity due is derived from the formula of present value of ordinary annuity and future value of annuity due is derived from the formula of future value of ordinary annuity.
Here PMT = 500, nper = 10 and r = 3%. Thus we have to find present value and hence we will use the “PV” function in excel. The syntax will be: PV (3%, 10, -500). This will give a result of $4,265.10. Thus the present value of car is $4,265.10
In the last case nper will change to 10*2 = 20 and r = 3%/2 (as the payments are semi-annual in nature). Also payments are being done at the beginning of each period so this becomes annuity due and so in the excel function we will select the “type” as 1 (as this represents annuity due). The present value now will be computed again using the PV function and the syntax will be: PV (3%/2, 20, -100,, 1). This will give a result of $1,742.62
Explain what is annuity & the diff between ordinary annuity and annuity due. What are the...
(a) What are the relationships of the present value and future value calculation of ordinary annuity and annuity due? (b) Suppose you would like to buy a car using a loan that requires an annual payment of $1,000 for 20 years at the end of each year. If the annual interest rate is 3%, what are the present value of this car? What is the Excel function used for this calculation? What would the present value be if the loan...
1.Future Value: Ordinary Annuity versus Annuity Due What is the future value of a 3%, 5-year ordinary annuity that pays $250 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. $ 2. Present and Future Value of an Uneven Cash Flow Stream An investment will pay $100 at the end of each of the next 3 years, $400 at the...
LG 4-20 Ordinary annuity versus annuity due Marian Kirk wishes to select the better of two 10-year annuities, C and D. Annuity C is an ordinary annuity of $2,500 per year for 10 years. Annuity D is an annuity due of $2,200 per year for 10 years. a. Find the future value of both annuities at the end of year 10, assuming that Marian can earn (1) 10% annual interest and (2) 20% annual interest. b. Use your findings in...
a. Explain what an annuity is, and distinguish between an annuity due and an ordinary annuity. (3 + 3½ +3½ = 10 marks) b. An investment of N$120,000 is made for three years at 20% per annum. Calculate the future value or the terminal value of the investment. (5 marks) c. What is the value of an amount of N$100,000 invested annually for 5 years at an interest rate of 20% per annum? (5 marks) d. FNB Namibia advertises that...
4. (a) What is the future value of a 3-year ordinary annuity (recall that ordinary annuities have end of year cash flows) of $200 if the appropriate interest rate is 12%? (1 point) (b) What is the present value of the annuity? (1 point) (c) What would the future and present values be if the annuity were an annuity due (beginning of year cash flows)? Hint, set your calculator to BGN, there is a video in M2 that shows you...
e. What is an annuity due? How does this differ from an ordinary annuity? f. What is the present value of an ordinary annuity of $2 comma 6002,600 per year for 2525 years discounted back to the present at 1111 percent? What would be the present value if it were an annuity due? g. What is the future value of an ordinary annuity of $2 comma 6002,600 per year for 2525 years compounded at 1111 percent? What would be the...
13. When comparing an annuity due to an ordinary annuity with the same time horizon, payment, interest rate, and compounding periods, the annuity due will have higher: A. future values, but not present values B. present values, but not future values C. future values and present values D. none of the above
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. $
Problem 4-6 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. $
Problem 4-6 Future Value: Ordinary Annuity versus Annuity Due What is the future value of a 8%, 5-year ordinary annuity that pays $650 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. $