Consider the following cases.
|
Case
|
Amount of annuity
|
Interest rate
|
Period (years)
|
Your answers here
|
|
Ordinary
|
Due
|
|
A
|
$12,000
|
7%
|
3
|
|
|
|
B
|
22,500
|
10
|
5
|
|
|
- a) Calculate the future value of the annuity that it is
- i)An ordinary annuity (annuity immediate)
- ii)An annuity due
- b) Compare your findings in parts a(1) and a(2). All else being identical, which type of annuity, ordinary or annuity due, is preferred? Explain why.