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Finance and Accounting Assignment

Since in this case, the payment is done at the beginning of the period every time, hence it is a case of an immediate annuity as each yearly payment is allowable to compound for an additional year as compared to the normal annuity case. In this context, Future Value of Annuity = A [{(1+i) ^n -1} / i] (Finance Formulas., n.d.) Where, A= Annual payment, i= interest rate per year, n= number of periods As in this case, each annual payment is completed at the start of each period, the same is allowed to compound for one extra period and hence its future value would be the product of value of a matching normal annuity and (1+ interest rate). Future Value of Annuity Due = (1+i) * A [{(1+i)^n -1} / i ] (Finance Formulas., n.d.) The 65th birthday is the day the person wants to have $2 million in the savings account. It should also be kept in mind that a payment is made even on the last day i.e. on the 65th birthday. This last payment does not get a chance to be compounded and has to be simply added to the compounded value of the earlier made 35 payments. In the Future Value of Annuity Due formulae, it has to be noted that the last cash payment is made one year prior to the end of the 35th year. ...

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Author : pdietrich