# Which annuity formula to use?

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1. Nov 27, 2005

### gillgill

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. Nov 27, 2005

### Tide

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. :)

3. Nov 27, 2005

### gillgill

but this section is about annuity...ordinary annuity and annuities due are the two equations. Out of these two, which one should i use?

4. Nov 27, 2005

### Tide

Tell us how your textbook defines those terms! :)

5. Nov 28, 2005

### gillgill

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.

6. Nov 28, 2005

### Tide

Good. And the father is making payments at the beginning of each compounding period ... therefore ...? :)

7. Nov 28, 2005

### HallsofIvy

Staff Emeritus
8. Nov 28, 2005

### gillgill

okay...so i use the annuity due formula....
thx.