Unformatted text preview: ounts and annuities. This simplest case is when
a person wishes to determine the number of periods, n, it will take for an initial deposit, PV, to grow to a specified future amount, FVn, given a stated interest rate, i.
EXAMPLE Ann Bates wishes to determine the number of years it will take for her initial
$1,000 deposit, earning 8% annual interest, to grow to equal $2,500. Simply
stated, at an 8% annual rate of interest, how many years, n, will it take for Ann’s
$1,000, PV, to grow to $2,500, FVn?
Table Use In a manner similar to our approach above to finding an unknown
interest or growth rate in a series of cash flows, we begin by dividing the amount
deposited in the earliest year by the amount received in the latest year. This
results in the present value interest factor for 8% and n years, PVIF8%,n, which is
0.400 ($1,000 $2,500). The number of years (periods) in Table A–2 associated
with the factor closest to 0.400 for an 8% interest rate is the number of years
required for $1,000 to grow into $2,500 at 8%. In the 8% column of Table A–2,
the factor fo...
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