The difference in his account value if he made the payments at the beginning of each year rather than at the end is $22,137.16
What is the difference between ordinary annuity and annuity due?
An annuity due has contributions made at the beginning of the year whereas an ordinary annuity contributions are made at the end of the year
FV(annuity due)=PMT*(1+r)^N-1/r*(1+r)
FV(ordinary annuity)=PMT*(1+r)^N-1/r
PMT=yearly payment=$5,300
r=rate of return=7%
N=number of years=25
FV(annuity due)=$5000*(1+7%)^25)-1 ))*(1+7%)
FV(annuity due)=$338,382.35
FV(ordinary annuity)=$5,000*(1+7%)^25/7%
FV(ordinary annuity)=$316,245.19
FV(annuity due)-FV(ordinary annuity)=$338,382.35-$316,245.19
FV(annuity due)-FV(ordinary annuity)=$22,137.16
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