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Present Value of Single Amt - Annuity

# Present Value of Single Amt - Annuity - 1 2 3 \$ Amount \$...

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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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