Annuity calculations can be simplified by using an

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Unformatted text preview: spreadsheet. A table for the future value of a $1 ordinary annuity is given in Appendix Table A–3. The factors in the table are derived by summing the future value interest factors for the appropriate number of years. For example, the factor for the annuity in the preceding example is the sum of the factors for the five years (years 4 through 0): 1.311 1.225 1.145 1.070 1.000 5.751. Because the deposits occur at the end of each year, they will earn interest from the end of the year in which each occurs to the end of year 5. Therefore, the first deposit earns interest for 4 years (end of year 1 through end of year 5), and the last deposit earns interest for zero years. The future value interest factor for zero years at any interest rate, FVIFi,0, is 1.000, as we have noted. The formula for the future value interest factor for an ordinary annuity when interest is compounded annually at i percent for n periods, FVIFAi,n, is8 n FVIFAi,n i)t (1 1 (4.13) t1 This factor is the multiplier used to calculate the future value of an ordinary annuity at a specified inte...
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This document was uploaded on 03/03/2014 for the course MBA BMMF at Open University Malaysia.

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