Question

Find the PV of an ordinary annuity that pays $1,000 each of the next 4 years if the interest rate is 14%. Then find the FV of that same annuity. Round your answers to the nearest cent. PV of ordinary annuity: $ 2913.71 FV of ordinary annuity: $ 4921.14 g. How will the PV and FV of the annuity in part f change if it is an annuity due rather than an ordinary annuity? Round your answers to the nearest cent. PV of annuity due: $ FV of annuity due: $

Answer 1

To adjust the PV and FV of an ordinary annuity to that of an annuity due, you multiply the respective amount by (1 + i), where i is the interest rate. Therefore, the PV of the annuity due is $3192.03, and the FV is $5610.10, calculated at 14% interest rate.

Step-by-step explanation:

The present value (PV) and future value (FV) of an annuity can be adjusted depending on whether it is an ordinary annuity or an annuity due. An annuity due is one in which payments are made at the beginning of each period, whereas in an ordinary annuity, payments are made at the end of each period. To find the PV of an annuity due, you would multiply the PV of an ordinary annuity by (1 + i), where i is the interest rate. Similarly, to find the FV of an annuity due, you would multiply the FV of an ordinary annuity by (1 + i).

Given the previously calculated PV of $1,000 ordinary annuity is $2913.71 and the FV is $4921.14 with an interest rate of 14%, we can calculate the values for an annuity due by applying these adjustments:

PV of annuity due: $2913.71 * (1 + 0.14) = $3192.03 (rounded to the nearest cent)

FV of annuity due: $4921.14 * (1 + 0.14) = $5610.10 (rounded to the nearest cent)