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Unformatted text preview: if he chooses annuity A, the ordinary annuity. It represents deposits of
$1,000 annually, at the end of each of the next 5 years, into a savings account
paying 7% annual interest. This situation is depicted on the following time line: $1,311
$5,751 Future Value Time line for future
value of an ordinary
annuity ($1,000 end-ofyear deposit, earning
7%, at the end of 5
0 $1,000 1 2 $1,000 $1,000 $1,000 3 4 5 End of Year As the figure shows, at the end of year 5, Fran will have $5,751 in her account.
Note that because the deposits are made at the end of the year, the first deposit
will earn interest for 4 years, the second for 3 years, and so on. CHAPTER 4 Time Value of Money 145 Using Computational Tools to Find
the Future Value of an Ordinary Annuity future value interest factor
for an ordinary annuity
The multiplier used to calculate
the future value of an ordinary
annuity at a specified interest
rate over a given period of time. Annuity calculations can be simplified by using an interest table or a financial calculator or a computer and...
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