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# Fvan n 1i 1 pmt i 3 100 108 1 08

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Unformatted text preview: 08 = 100(3.2464) = 324.64 7 Future Value of an Annuity Annuity- string of deposits with constant value and Annuityfixed interval. fixed 0 1 2 3 \$0 \$100 \$100 \$100 Compute FV3 How much would this account have in it at the end of 3 years if interest were earned at a rate of 8% annually? 324.64 NOTE: PV = 0 since the cashflow in time period 0 = \$0 N 3 I/YR PV PMT FV 8 -100 ? 8 Future Value of an Annuity Example Susan is able to save \$980/yr for retirement. She Susan makes these deposits at the end of each year. If she invests her savings at 12% compounded annually, how much will she have upon retirement in 45 years? years? 0 1 \$980 2 3 \$980 \$980 44 45 \$980 \$980 45 FVA45 = 980( (1+.12) - 1 ) .12 = 980(1358.23) = \$1,331,065.43 1,331,065.43 N I/YR PV PMT FV 45 12 -980 ? 9 Future Value of an Annuity Example Susan is able to save \$980/yr for retirement. She Susan makes these deposits at the end of each year. If she invests her savings at 12% compounded annually, how much will she have upon retirement in 45 years? years? FVA45 = \$1,331,065.43 How much of the total is principal and how much is earned interest? \$980 x 45 years \$980 x 45 years 44,100 Principal Interest 1,286,965 10 Future Value of an Annuity Example #1a Susan will make equal quarterly payments totaling Susan \$980/yr for retirement. She makes these deposits at the end of each quarter. If she invests her savings at 12% compounded quarterly, how much will she have quarterly how upon retirement in 45 years? upon 0 1 2 45 P/Yr = 1 1,661,944.10 \$245 45 x 4 FVA45 = 245( (1+.03) - 1 ) .03 = 245(6783.45) = \$1,661,944.10 N 180 I/YR PV PMT FV 3 -245 ? 11 Present Value of an Annuity How much would the following cash flows be worth to you today if you could earn 8% on your deposits? 0 1 2 3 \$0 \$100 \$100 \$100 \$92.60 \$100/(1.08) \$100 / (1.08)2 \$85.73 \$100 / (1.08)3 \$79.38 \$257.71 PVA = PMT( PVA = 1 i 1 100(.08 1 n i (1+i) ) 1 3 .08(1+.08) = 100(2.5771) = 257.71 257.71 257.71 ) N 3 I/YR PV PMT FV 8 ? -100 12 Present Value of an Annuity Lo...
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