Assignment 6 As a business owner trying to expand my vinyl fence company, I need to purchase a new warehouse facility to meet my goal. My insurance company is offering me two very attractive investment options: an ordinary annuity and an annuity due. Both investment options will compound quarterly, paying a whopping 8% annual interest over a 5-year period. With my 5-year budget, I will save $2,500 each quarter. To evaluate which option will benefit the business the most, I will evaluate both annuity options by calculating the future value of each option and explain how the investment will help me to carry out my goals.
After further review of the maintenance log, I now know that I need to also replace a fence post molding machine that costs $45,000. I will probably need to purchase this machine within three years, so I will plan to save for this purchase using a sinking fund that compounds semi-annually, and earns a rate of 12%.
As our textbook describes, an annuity is, “…a contract between you and an insurance company for receiving and disbursing money for the annuitant or the beneficiary of the annuitant (Cleaves, Hobbs, Noble, 2015).” An ordinary annuity consists of payments made at the end of each decided period, while an annuity due is made up of payments at the beginning of each period.
The future value of an ordinary annuity is shown below:

Number of periods = years * periods per year = 5 * 4 = 20
Period interest rate = annual interest rate / periods per year = 8% / 4 = 2%
TV= 24.297
FV = annuity payment * TV
FV = $2,500 * 24.297 = $60,742.50

The future value of an annuity due is:
FV = annuity payment * table value * (1+period interest)
FV = $2,500 (24.297)(1.08)
FV = $65,601.90

Because an annuity accumulates interest one more time in a period than an ordinary annuity does, but still has the same amount of payment, I would choose the