You must determine what size annuity will result in a

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Unformatted text preview: for PMT. Isolating PMT on the left side of the equation gives us PMT FVAn FVIFAi,n (4.23) Once this is done, we have only to substitute the known values of FVAn and FVIFAi,n into the right side of the equation to find the annual deposit required. EXAMPLE Input 20,000 Function FV 5 N I 6 CPT As just stated, you want to determine the equal annual end-of-year deposits required to accumulate $20,000 at the end of 5 years, given an interest rate of 6%. Table Use Table A–3 indicates that the future value interest factor for an ordinary annuity at 6% for 5 years (FVIFA6%,5yrs) is 5.637. Substituting FVA5 $20,000 and FVIFA6%,5yrs 5.637 into Equation 4.23 yields an annual required deposit, PMT, of $3,547.99. Thus if $3,547.99 is deposited at the end of each year for 5 years at 6% interest, there will be $20,000 in the account at the end of the 5 years. PMT Solution 3547.93 Calculator Use Using the calculator inputs shown at the left, you will find the annual deposit amount to be $3,547.93. Note that this value, except for a slight rounding difference, agrees with the value found by using Table A...
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This document was uploaded on 03/03/2014 for the course MBA BMMF at Open University Malaysia.

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