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Unformatted text preview: 1 2 3 ? $ Amount $ Amount $ Amount Question: What is the Present Value of an annuity of 3 payments of $2,000 each, at an interest rate of 5% per period? Present Value Payment Amount $5,446.50 $2,000.00 Payment Amount $2,000.00 Payment Amount $2,000.00 = $2,000 times 2.72325 2.72325 is the table factor for 3 periods at 5% P R O O F Year 1 Year 2 Year 3 Beg. of Yr. Amt. $5,446.50 $3,718.83 $1,904.77 Interest Rate 5.0% 5.0% 5.0% Interest for the Year $272.33 $185.94 $95.24 + Beg. of Yr. Amt. $5,446.50 $3,718.83 $1,904.77 End of Yr. Amt. $5,718.83 $3,904.77 $2,000.01  Payment ($2,000.00) ($2,000.00) ($2,000.00) End Amt. After Pmt. $3,718.83 $1,904.77 $0.01 Example: How much do I need to put in a savings account "now" if I want to be able to take out $2,000 at the end of year 1, and $2,000 at the end of year 2, and $2,000 at the end of year 3, and the bank pays 5% interest per year, compounded yearly....
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This note was uploaded on 10/20/2011 for the course ACC 221 taught by Professor Wiegand during the Spring '08 term at Miami University.
 Spring '08
 wiegand
 Financial Accounting

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