21a for the 8 nominal annual rate k 008 substitution

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: d to accumulate a future sum, (2) loan amortization, (3) interest or growth rates, and (4) finding an unknown number of periods. Deposits Needed to Accumulate a Future Sum Suppose you want to buy a house 5 years from now, and you estimate that an initial down payment of $20,000 will be required at that time. To accumulate the $20,000, you will wish to make equal annual end-of-year deposits into an account paying annual interest of 6 percent. The solution to this problem is closely related to the process of finding the future value of an annuity. You must determine what size annuity will result in a single amount equal to $20,000 at the end of year 5. Earlier in the chapter we found the future value of an n-year ordinary annuity, FVAn, by multiplying the annual deposit, PMT, by the appropriate interest factor, FVIFAi,n. The relationship of the three variables was defined by Equation 4.14, which is repeated here as Equation 4.22: FVAn PMT (FVIFAi,n) (4.22) We can find the annual deposit required to accumulate FVAn dollars by solving Equation 4.22...
View Full Document

This document was uploaded on 03/03/2014 for the course MBA BMMF at Open University Malaysia.

Ask a homework question - tutors are online