TVM09 - Future Value of an Ordinary Annuity Due

Audio Transcript

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

Select Rate,

Select NPER,

Select PMT

Hit OK

The FV is $10,668

 

 

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