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Homework Help: Which annuity formula to use?

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  1. Nov 27, 2005 #1
    A father opened a savings account for his daughter on the day she was born, depositing $1000. Each year on her birthday he deposits another $1000, making the last deposit on her twenty-first birthday. If the account pays 9.5% interest compounded annually, how much is in the account at the end of the day on the daughter's twenty first birthday?

    For this question, which formula do i use?
    ordinary annuity: where payments are made at end of time period
    or
    annuities due: where payments are made at beginning of time period
    ???
     
  2. jcsd
  3. Nov 27, 2005 #2

    Tide

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    You use the simple equation for compound interest and apply it to each deposit made over the course of 21 years --- and then add them all up. :)
     
  4. Nov 27, 2005 #3
    but this section is about annuity...ordinary annuity and annuities due are the two equations. Out of these two, which one should i use?
     
  5. Nov 27, 2005 #4

    Tide

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    Tell us how your textbook defines those terms! :)
     
  6. Nov 28, 2005 #5
    ordinary annuities: those with payments made at the end of each time period.

    annuities due: annuities in which payments are made at the beginning of each time period.
     
  7. Nov 28, 2005 #6

    Tide

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    Good. And the father is making payments at the beginning of each compounding period ... therefore ...? :)
     
  8. Nov 28, 2005 #7

    HallsofIvy

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  9. Nov 28, 2005 #8
    okay...so i use the annuity due formula....
    thx.
     
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