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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 Spring '08
 Staff
 Managerial Accounting, Interest Rates, Time Value Of Money, PV PMT FV, I/YR PV PMT

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