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Time Value of Money Solution Grid

 Self-Paced Overview

Using the Solution Grid

Annuity Due

Annuity due refers to annuities received or paid at the beginning of the year. These are distinguished from ordinary annuities, which are end-of-year cash flows. In most situations, annuities are assumed to be end-of-year. So unless you are told that the annuity is beginning-of-year, assume that it is an ordinary, end-of-year annuity. All of the problems in this overview thus far have involved end-of-year annuities. But now we will discuss calculating annuities due.

Notice at the right of the second row on the calculator keypad, the key Beg/End. This key toggles between the calculator's Begin and End mode, and is used to set beginning-of-period and end-of-period. Press   Beg/End a couple of times and notice in the calculator display that BEG appears when the calculator is set for beginning-of-period and, conversely, is clear when set for end-of-period.

Problem:

If you deposit $35,000 the beginning of each year for 30 years and earn 8%, how much will you have saved?

The solution grid:

P/YR
1
N I/YR PV PMT FV
30 8 0 35,000 +/- ?

The answer is:  $4,282,105.38

The calculator keystrokes:

C
  C ALL
1    P/YR
  Beg/End   (Verify BEG is displayed)
3  0  N
8  I/YR
0  PV
3  5  0  0  0  +/  PMT
FV
CE/C
2nd CLR TVM
2nd P/Y  1  ENTER  2nd QUIT
2nd BGN  2nd SET  2nd QUIT
3  0  N
8  I/Y
0  PV
3  5  0  0  0  +/  PMT
CPT  FV

Now, press   C ALL to clear the calculator, and notice that BEG is still displayed. Just like P/YR, Begin and End mode is a setting of the calculator and is not affected by clearing the calculator's registers. So once Begin mode is set, anytime you work an annuity problem, you will be calculating the cash flows from the beginning of the period. To set the calculator back into End mode, simply press   Beg/End until BEG clears from the calculator display.

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