How do i know that this question is asking for annuity due? 422, following, question, calculator

richer

a question from qbank on annuity:

How much should an investor have in a retirement account on his 65th birthday if he wishes to withdraw $40,000 on that birthday and each of the following 14 birthdays, assuming his retirement account is expected to earn 14.5%?

A) $234,422.

B) $274,422.

C) $272,977.


Your answer: A was incorrect. The correct answer was B) $274,422.

This is an annuity due so set your calculator to the BGN mode. N = 15; I/Y = 14.5; PMT = –40,000; FV = 0; CPT ? PV = 274,422.50. Switch back to END mode.

Actually from the question above, how do i know that this is an annuity due question? i calculate using the end mode instead of bgn mode.

Thanks

scr879

draw a timeline for all such tvm problems.

he wishes to draw on that birthday itself. so it is an annuity due.

if it had been one year later - it would have been a regular annuity.

also recognize that an PV(annuity due) = PV(Annuity) + PMT.

CP

invic

put another way - you want to know how much money he needs at the time payments begin.