Consider a 10-year annuity that promises to pay out $10,000 per year; given this is an ordinary annuity and that an investor can earn 10% on her money, the future value of this annuity, at the end of 10 years, would be:
A) $175,312. B) $110.000. C) $159,374.
N = 10; I/Y = 10; PMT = -10,000; PV = 0; CPT → FV = $159,374.
I thought you would set your calculator to Begin. But do you not because the question asks for FV of annutiy at end of 10 years? instead of beginning?
Try not to overthink it. It’s stated right in the question it’s asking for the value at the end of the 10 years. And it also states it’s an ordinary annuity; which pays at the end of n periods, unlike an annuity due at the beginning.
I think payment at the beginning of the period is a special case and would be explicitly mentioned on the question.
CRAP - wow, i am overthinking the quesiton. Ordinary annuity… NOT an annuity due.
By the way, you can estimate the correct answer pretty easily:
Total payments: $10,000 × 10 = $100,000.
Average time a payment earns interest: 10 years ÷ 2 = 5 years.
Approximate interest: $100,000 × 5 years × 10%/year = $50,000.
Approximate future value = $100,000 + $50,000 = $150,000.