FV of annuity due-Cash flow

occur at the beginning of each

period, and future value is
calculated as of one period after
the last cash flow.

Overview View of an
Annuity Due -- FVAD
Cash flows occur at the beginning of the period

n-1

. . .

i%
R

FVADn = R(1+i)n + R(1+i)n-1 +

... + R(1+i)2 + R(1+i)1
= FVAn (1+i)

FVADn

Example of an
Annuity Due -- FVAD
Cash flows occur at the beginning of the period

7%
$1,000

$1,000

$1,000

$1,070

$1,145
$1,225
FVAD3 = $1,000(1.07)3 +
$1,000(1.07)2 + $1,000(1.07)1
= $1,225 + $1,145 + $1,070
= $3,440

$3,440 = FVAD3

Valuation Using Table III

FVADn
= R (FVIFAi%,n)(1+i)
FVAD3
= $1,000 (FVIFA7%,3)(1.07)
= $1,000 (3.215)(1.07) = $3,440
Period
6%
7%
8%
1
1.000
1.000
1.000
2
2.060
2.070
2.080
3
3.184
3.246
3.215
4
4.375
4.440
4.506
5
5.637
5.751
5.867

PV value of an annuity due

cash flows occur at the beginning
of each period, and PV
calculated as of the first cash
flow.

Overview of an
Annuity Due -- PVAD
Cash flows occur at the beginning of the period

PVADn

. . .

i%
R

n-1

R: Periodic
Cash Flow

PVADn = R/(1+i)0 + R/(1+i)1 + ... + R/(1+i)n-1

= PVAn (1+i)

Example of an
Annuity Due -- PVAD
Cash flows occur at the beginning of the period

7%
$1,000.00
$ 934.58
$ 873.44

$1,000

$1,000

$2,808.02 = PVADn

PVADn = $1,000/(1.07)0 + $1,000/(1.07)1 +

$1,000/(1.07)2 = $2,808.02

Valuation Using Table IV

PVADn = R (PVIFAi%,n)(1+i)
PVAD3
= $1,000 (PVIFA7%,3)(1.07)
= $1,000 (2.624)(1.07) = $2,808
Period
6%
7%
8%
1
0.943
0.935
0.926
2
1.833
1.808
1.783
3
2.673
2.577
2.624
4
3.465
3.387
3.312
5
4.212
4.100
3.993