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Questions under (f)(1), f(2), f(3) are already solved with using
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Questions under (f)(1), f(2), f(3) are already solved with using calculator method. Please, also add formula method, indicating the formula and then its DETAILED implication.

Question g must be completed, using several DETAILED methods.



e. What?s the difference between an ordinary annuity and an annuity due?

 

Answer: The difference between ordinary annuity and annuity due is that in ordinary

 

annuity there is equal and consecutive payments that are paid at the end of each period,

 

while on annuity due these payments are made at the beginning of each period and the last

 

payment will stop one period before the end of the specified period.

 

What type of annuity is shown below?

 

Answer: The type of annuity shown below is called an ordinary annuity.

 


 

How would you change the timeline to show the other type of annuity?

 

Answer: The above annuity can be changed to an annuity due as follows.

 


 

f. (1) What?s the future value of a 3-year ordinary annuity of $100 if the appropriate interest rate

 

is 10%?

 

Answer: $331

 


 

Method 1

 

Add formula method, indication formula used and then its DETAILED implication.

 

Method 2

 


 

(2) What?s the present value of the annuity?

 

Answer: $248.69

 


 

Method 1

 

Add formula method, indication formula used and then its DETAILED implication.

 

Method 2

 


 

(3) What would the future and present values be if the annuity were an annuity due?

 

Answer: future value is $364.10; present value is $273.56

 

Method 1

 

Add formula method, indication formula used and then its DETAILED implication.

 

Method 2

 

*set calculator to begin mode:

 


 

*set calculator to begin mode

 


 

g.

 

What is the present value of the following uneven cash flow stream? The appropriate

 

interest rate is 10%, compounded annually.

 

0

 


 

1

 


 

2

 


 

3

 


 

0

 


 

100

 


 

300

 


 

300

 


 

4

 

-50

 


 

Please answer questions using 2 methods: formula implication, indicating the formula itself and

 

then its detailed application; calculator method.

 


 

 







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