Using the values below answer the questions that follow Annu

Using the values? below, answer the questions that follow

Annuity : 2,000

Interest : 11 %

Deposit period (years) : 12

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?(2).All else being? identical, which type of annuity ordinary or annuitydueispreferable as an? investment? Explain why.

Show with pictures which buttons to select on financial calculator when solving this problem.

Solution

a. Ordinary Annuity:

PV = 0, 1/Y = 11%, N = 12, PMT = 2000

use FV function

Future value of ordinary annuity = 45,426.37

2) Future value of an annuity due = 45,426.37 * 1.11 = 50,423.28

b. The future value of an annuity due is more. This is because each cash flow of an annuity due earns an interest for one more period since these cash flows are received earlier than that of an ordinary annuity.