What's the future value of a 5%, 5-year ordinary annuity that pays $800 each year? If this was an annuity due, what would its future value be? Do not round intermediate calculations. Round your answers to the nearest cent. Future Value of an Ordinary Annuity: $ Future Value of an Annuity Due: $
The future value of an ordinary annuity and an annuity due are two important financial concepts used to determine the value of a series of payments made at regular intervals over a specified period of time.
An ordinary annuity is a series of equal payments made at the end of each period, whereas an annuity due is a series of equal payments made at the beginning of each period.
The future value of an ordinary annuity can be calculated using the following formula:
where FV is the future value of the annuity, A is the payment amount, r is the interest rate, and n is the number of periods.
The future value of an annuity due can be calculated using the following formula:
where the same variables are used as in the ordinary annuity formula, but the future value is multiplied by (1 + r) to account for the payments being made at the beginning of each period, rather than at the end.
In both cases, the future value of the annuity will be higher than the sum of the individual payments, due to the compounding effect of interest over time.
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