Economics · Financial Mathematics
When calculating the Future Value of an Ordinary Annuity (FVOA), why is the last payment made in the series NOT subject to any compounding?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Because the compounding period always ends one period before the final payment.
- 2Because, by definition of an Ordinary Annuity, the payment occurs at the end of the final period, coincident with the calculation of the future value.✓
- 3Because the FVOA formula assumes simple interest on the last payment only.
- 4Because the last payment is discounted back to the present, not compounded forward.
Correct answer
Because, by definition of an Ordinary Annuity, the payment occurs at the end of the final period, coincident with the calculation of the future value.
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