Present Value of Single Amt - Annuity

Present Value of - 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

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Present Value of a Single Amount moves an amount from the end of some period in the future to "now" now end of end of end of period 1 period 2 period 3 0 1 2 3 ? $ Amount Question: What is the Present Value of $5,000.00 due 3 periods in the future at a 5% per period interest rate? Present Value Future Amount $4,319.20 0.86384 times $5,000.00 .86384 is the table factor for 3 periods at 5% P R O O F Year 1 Year 2 Year 3 Beg. of Yr. Amt. $4,319.20 $4,535.16 $4,761.92 Interest Rate 5.0% 5.0% 5.0% Interest for the Year $215.96 $226.76 $238.10 + Beg. of Yr. Amt. $4,319.20 $4,535.16 $4,761.92 End of Yr. Amt. $4,535.16 $4,761.92 $5,000.02 Note the $.02 roundin to five decimal places was rounded to two d Example: How much do I need to put in a savings account "now" if I want to have $5,000.00 at the end of 3 years, and the bank pays 5% interest per year, compounded yearly
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Present Value of Annuity moves a stream of equal amounts which will be received at the end of future time periods to "now" now end of end of end of period 1 period 2 period 3
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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.

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Present Value of - 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

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