Is it possible to convert the FUTURE value of an ordinary annuity table to the future value of an annuity due table?

A. Yes. Use an ordinary annuity computation for (n + 1) and then deduct one payment from the result. Setting the period at (n + 1) is necessary to reflect the fact that the first payment is received immediately and compounds for an additional period. We then have to subtract 1.0000 (one payment) from the table future value factor to avoid double counting the last payment which is not received at the end of the last period.

 

B. Yes. Use an ordinary annuity computation for (n + 1) and then add one payment to the result. Setting the period at (n + 1) is necessary to reflect the fact that the first payment is received immediately and compounds for an additional period. We then have to add 1.0000 (one payment) from the table future value factor to avoid double counting the last payment which is not received at the beginning of the last period.

 

C. Yes. Multiply the ordinary annuity factor or the FV of the ordinary annuity by (1 + i). The logic in this case is that we make the first deposit one period sooner and it accumulates interest for one additional period.

 

D. No. The future value of an annuity due table requires a discount schedule where we discount each payment back to its PV. It is not possible to take an ordinary annuity and take the first payment made at the end of the first period and discount it back to the start date. Recall that annuity due payments are made at the end of the period and therefore cannot be discounted in the payment period to which they apply.

 

E. A and C are correct.

F. B and C are correct.

Answer rating: 100% (QA)

The detailed answer for the above question is provided bel... View the full answer