632598256894

To confirm that the number of payments is correct, we look at the FV of the amount paid into the
annuity in year 9. N in this case is 9; as mentioned, this is an ordinary annuity, which means that
payments are made at the end of the time period. Therefore, the payment made at the end of year 9
receives interest for only one period. Substituting again into the FV formula 4a, we have F V = P V ×
(1 + I) N .
Substituting into the equation, we have the following:
Let us now use Excel to calculate the FV of an ordinary annuity using the same values as before
(see Exhibit 4.12).
Here is a step-by-step Excel approach to finding the FVA N :
• Enter the following values into cells C4, C5, and C6, respectively:
C4 = -$500
C5 = 7%
C6 = 10
• Now enter the “=” sign into cell C8.
• Now select “FV” from the functions box (may require you to use the drop-down menu to
find FV).
• Now enter the Rate value (select cell C5).
• Now enter the Nper value (select cell C6).
• Now enter the Pmt value (select cell C4).
• Skip or enter a “0” for PV.
• Skip or enter a “0” for Type.
• Now select “OK” in the function argument box.
Exhibit 4.12 Finding the future value of an ordinary annuity: Excel example 6.