Example fran abrams wishes to determine how much

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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 1,225 1,145 1,070 1,000 $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 years) $1,000 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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This document was uploaded on 03/03/2014 for the course MBA BMMF at Open University Malaysia.

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