FVADn = R(1 + i)n + R(1 + i)n-1 + ... + R(1 + i)2 + R(1 + i)1 = FVAn (1 + i)

FVADn = R(1 + i)n + R(1 + i)n-1 + ... + R(1 + i)2 + R(1 + i)1 = FVAn (1 + i)

• FVADn = R(1 + i)n + R(1 + i)n-1 + ... + R(1 + i)2 + R(1 + i)1 = FVAn (1 + i)

• R R R R R

• 0 1 2 3 n–1 n

• FVADn

• i%

• . . .

• Overview View of an Annuity Due – FVAD

• Cash flows occur at the beginning of the period

FVAD3 = $1,000(1.07)3 + $1,000(1.07)2 + $1,000(1.07)1

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

• $1,000 $1,000 $1,000 $1,070

• 0 1 2 3 4

• $3,440 = FVAD3

• 7%

• $1,225

• $1,145

• Example of an Annuity Due – FVAD

• Cash flows occur at the beginning of the period

• FVADn = R (FVIFAi%,n)(1 + i)
• FVAD3 = $1,000 (FVIFA7%,3)(1.07) = $1,000 (3.215)(1.07) = $3,440

• Valuation Using Table III

• N

• I/Y

• PV

• PMT

• FV

• Inputs

• Compute

• 3 7 0 –1,000

• 3,439.94

• Complete the problem the same as an “ordinary annuity” problem, except you must change the calculator setting to “BGN” first. Don’t forget to change back!
• Step 1: Press 2nd BGN keys
• Step 2: Press 2nd SET keys
• Step 3: Press 2nd QUIT keys

• Solving the FVAD Problem