FUTURE VALUE ANNUITY VERSUS ANNUITY DUE Whats the future val

FUTURE VALUE: ANNUITY VERSUS ANNUITY DUE

What\'s the future value of a 12%, 5-year ordinary annuity that pays $200 each year? Round your answer to the nearest cent.

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

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Solution

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

=$200[(1.12)^5-1]/0.12

=$200*6.35284736

=$1270.57(Approx)

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

=$1270.57*1.12

=$1423.04(Approx).