A finished FIN-350 Topic 3 annuity problem set example, valuing ordinary, due, deferred and perpetual streams and showing on which date each formula result actually sits. Searches like "fin 350 topic 3 assignment example", "fin350 topic 3 sample" and "fin-350 topic 3 example" land here.
What a finished FIN-350 Topic 3 annuity problem set looks like
The finished set anchors every answer to a date. A five-year stream of 2,000 paid at each year end, valued at an illustrative 6 percent, is worth about 8,425 today. Paid at the start of each year instead, the same stream is worth about 8,930, because every payment arrives one period sooner. The deferred problem is where the example earns its marks: five payments of 2,000 beginning in year three produce a formula value of 8,425 located at year two, which discounted two years gives about 7,498. Discounting three years, a common slip, gives about 7,074. A perpetuity of 500 at 5 percent is worth 10,000. The loan table then shows each payment's split between interest and principal shifting across the term.
How a FIN-350 Topic 3 example is structured
The set moves from the standard stream to the arrangements that break the standard formula. It opens with a note on what an annuity formula assumes: equal amounts, equal spacing and a value placed one period before the first payment. The ordinary annuity problem follows, worked with the factor shown. The annuity due problem reuses the same stream and explains the adjustment in terms of dates. The deferred annuity problem marks the formula's landing point before discounting it back to today. A perpetuity problem shows the limiting case where the payments never end. An amortization section builds a short loan table, splitting each payment into interest and principal and tracking the balance to zero. The closing section notes how to recognize a case whose payments are uneven, where the formula has to be set aside.
What the formula assumes, stated
Equal amounts at equal intervals, with the result valued one period before the first payment, are listed before any stream is priced.
Start-of-period payments moved one date
The annuity due answer is the ordinary one moved forward a period, which the example explains by dates instead of presenting as a separate rule.
The deferred stream's landing date
A formula result for payments starting in year three sits at year two, and discounting from year three instead understates the value by about 424.
A perpetuity as the limit
When the payments never stop, the value collapses to payment divided by rate, and the example connects that result to the finite streams above it.
Amortization tracked to zero
Each loan payment is split into interest on the remaining balance and principal repaid, with the balance reaching zero in the final row.
Where marks go in FIN-350 Topic 3
Placing the formula's result on the wrong date is where this set is most often marked wrong, especially on deferred streams, where discounting one period too far understates value by a visible amount. Applying the ordinary annuity factor to payments made at the start of each period misses the one-period shift and undervalues every figure. Forcing uneven payments through an annuity formula produces an answer that looks tidy and is simply incorrect. Amortization tables that compute interest on the original loan rather than on the remaining balance never reach zero. Treating a perpetuity as a very long annuity without recognizing the limiting formula spends time for no gain. Results left without a sentence on what they mean for the lender, borrower or investor in the problem miss the interpretation marks.
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Send the FIN-350 Topic 3 problems and the rubric listed in your classroom, with the figures your section assigned. We write a custom example to them, with the formula's assumptions stated, each result placed on its correct date, deferred and perpetual streams handled and an amortization table built to zero, in 24 to 48 hours. The first one is free.
FIN-350 Topic 3 questions, answered
Why is an annuity due worth more?
Because every payment arrives one period earlier than in the ordinary version, so each one is discounted one period less. Valuing the ordinary stream and multiplying by one plus the rate makes the adjustment. In the example, 2,000 a year for five years at 6 percent is worth about 8,425 paid at each year end and about 8,930 paid at the start.
Where does a deferred annuity's formula value sit?
One period before the first payment. If payments begin at the end of year three, the annuity formula gives a value at the end of year two, which must then be discounted two periods to reach today. Discounting three periods is the common mistake, and it understates the value by the size of one extra year of discounting.
How does an amortization table show what a loan costs?
Each row splits the payment into interest, charged on the balance still owed, and principal, which reduces that balance. Early rows are mostly interest and later rows mostly principal, because the balance is largest at the start. Summing the interest column gives the total cost of borrowing, and a final balance of zero confirms the payment was computed correctly.