ASSIGNMENT | FV of an Annuity Due vs. FV of Ordinary Annuity

How’s the future value of an annuity due compare to the future value of an ordinary annuity? Is the U.S. Treasury yield curve currently inverted? Does Merck have sufficient working capital? The working capital number is calculated by subtracting a company’s current liabilities from its current assets. It’s very important that this number is greater than zero; that is, current assets greater than current liabilities; such a situation indicates that the company is financially stable. However, if a firm’s current liabilities exceed its current assets, that’s a problem situation, potentially caused by customers not paying their bills on time. Under such a situation, the company will likely need to borrow money; if interest rates are particularly high, that can be quite expensive.

SAMPLE SOLUTION

The Future Value of an Annuity Due Versus the Future Value of an Ordinary Annuity
The future values differ based on the timing of payments. While the payment of the future value of an annuity due (AD) is undertaken immediately, the future value of an ordinary annuity (OA) is undertaken towards the end of the period. At the end of the day, with both types of annuities, the amount of payment to be made is the same but what differs is while in AD the payment will be made one year earlier, for the OA, the payment will be made one year later (after an investment has been made) (Donald, 2016).
US Treasury Yield Curve
Yes, as of March 2019, the US treasury yield curve was inverted for the first time since the year 2007. This inversion is a great indicator that the country could be going through an economic recession. The recent times has seen the US experience an interest rate scenario where long term debt instruments provide a lower return as compared to short-term debt instruments…