TVM09 - Future Value of an Ordinary Annuity Due
This is a future value of an ordinary annuity due problem. In a future value of annuity due problem, the payment is made at the beginning of the year.
Assume that you plan to deposit $950 per year on each birthday of your son Richard. You make the first deposit on his tenth birthday, at 7.5% compounded annually. What amount will you have accumulated for college expenses by your son’s eighteenth birthday?
In a future value of an annuity due problem, the payment is made at the beginning of the year.
First, plug in the known values into the appropriate cells:
The number of periods – NPER – is 8
The interest rate – Rate – is 7.5%
The payment – PMT – is $950
The TYPE = 1, which indicates payment at the beginning of the period
Going to the formulas tab, look for the FV function.
The function wizard pops up
The FV is $10,668