Future value of an annuity Using the values below, answer the questions that fol

Question

Future value of an annuity Using the values below, answer the questions that follow. (Click on the icon located on the top-right come the data table below in order to copy its contents into a spreadsheet.) Amount of annuity S3,500 interest rate 11% Deposit period (years) 9 a. Calculate the future value of the annuity, assuming that it is (1) An ordinary annuity (2) An annuity due. b. Compare your findings in parts a(1) and a(2). All else being identic al, which type of annuity ordinary or annuity due -is preferable as an investment? Explain why a. (1) The future value of the ordinary annuity is (Round to the nearest cent) (2) The future value of the annuity due iss (Round to the nearest cent) best answer below) being identic al, which type of annuity is preferable as an investment? (Select the 0 O Ordinary annuity, because it yields a greater future value Annuity due, because it yields a greater future value.

Explanation / Answer

Amount annuity = 3500 Term of deposit 9 years Interest rate 11% Computation present value of ordinary annuity Year Amount FVF @ 11% Future value 0 3500 1.000 3500 1 3500 1.110 3885 2 3500 1.232 4312.35 3 3500 1.368 4786.7085 4 3500 1.518 5313.246435 5 3500 1.685 5897.703543 6 3500 1.870 6546.450933 7 3500 2.076 7266.560535 8 3500 2.305 8065.882194 49573.90214 Computation present value of annuity due Year Amount FVF @ 11% Future value 1 3500 1.110 3885 2 3500 1.232 4312.35 3 3500 1.368 4786.7085 4 3500 1.518 5313.246435 5 3500 1.685 5897.703543 6 3500 1.870 6546.450933 7 3500 2.076 7266.560535 8 3500 2.305 8065.882194 9 3500 2.558 8953.129235 55027.03137

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