Future Value of an Annuity Due If the future value of an ordinary,7-year annuity is $10,000 and interest rates are 4 percent,what is the future value of the same annuity due?
A)$9,615.38
B)$10,000.00
C)$10,400.00
D)$10,700.00

Question

Quizplus · Accepted Answer

When we calculate the future value of an annuity due, we have to multiply the future value of the ordinary annuity by a factor of (1+i), where i is the interest rate per period, and then add one additional payment. In this case, the interest rate is 4%, or 0.04 per period, and the number of periods is 7. Therefore, the factor is (1.04)^7 = 1.3108, and the additional payment is the payment at time 0. Thus, the future value of the annuity due is $10,000 x 1.3108 + $1,000 = $10,400. Therefore, the best choice is C.

Future Value of an Annuity Due If the Future Value