Future and Present Value of an Annuity Due If you start making $25 monthly contributions today and continue them for 4 years, what's their future value if the compounding rate is 6 percent APR? What is the present value of this annuity?
A) $101.26, $99.26
B) $1,352.45, $1,064.51
C) $1,359.21, $1,069.83
D) $2,171.02, $1,516.03

Question

Quizplus · Accepted Answer

To calculate the future value of the annuity due, we can use the formula:

FV = PMT * [(1 + r) * ((1 + r)^n - 1) / r]

Where:

PMT = $25 (monthly contribution)
r = 6%/12 = 0.5% (monthly interest rate)
n = 4 years * 12 months per year = 48 months

FV = $25 * [(1 + 0.005) * ((1 + 0.005)^48 - 1) / 0.005] = $1,359.21

To calculate the present value of the annuity, we can use the formula:

PV = PMT * [(1 - (1 + r)^-n) / r] * (1 + r)

PV = $25 * [(1 - (1 + 0.005)^-48) / 0.005] * (1 + 0.005) = $1,069.83

Therefore, the correct answer is C, $1,359.21 and $1,069.83.

Future and Present Value of an Annuity Due If You