Fv the answer you found 2 n n 3 i keep the same 4 pmt

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1. FV= the answer you found 2. N= N* 3. I%= keep the same 4. PMT= 0 5. Press F3 to find the PV/FV for delayed annuity EX: John will receive a $2000/month pension when he retires in 15 years. He expects to live 50 years past retirement. At 3% annual interest, what is the current value of his pension? CALC: 1. P/Y= 12 2. C/Y= 1!!!! ENSURE 3. I= 3% 4. N= 600 (50 years×12 months/ year) 5. PMT= 2000 6. FV= 0 7. F3 to find PV= $625,959.84 value pension when it starts in 15 years NEXT Step 2 1. N=15 2. I%= 3 3. PMT= 0 4. FV= 625959.84 5. P/Y= 1 6. F3 to find PV= $401,799.90 value of pension today Time Value of Money Pt. 2 How to value a growing annuity/ perpetuity How interest rates are quotes - Compound interest rates Solve TVM problems involving compound interest on a financial calc - Loan payments or the interest rate on a loan How loans are amortized or paid off Growing Annuities -Growing annuities/ perpetuities have cash flow that grow at a constant rate- due to such factors as Inflation -Sales growth (e.g., dividends paid by a firm) Consider an annuity/ perpetuity whose cash flow is C1 in the first period and grows at the rate of g per period PV is found the same as an ordinary annuity/ perpetuity except that you set *I%= ( r g ) ÷ ( 1 + g ) × 100 *PMT= C 1 ÷ ( 1 + g ) EX: Sarah is offered $50,000 starting salary. She anticipates 5% per year wage increases until her retirement in 40 years. Given an 8% interest rate, what is the PV of her lifetime salary? Effective Annual Rate or EAR Represents the true rate of interest that the lender earns (And the borrower pays) per year CALC: To find the EAR of a compounded rate 1. Go to TVM fun 2. Choose F5: Conversion 3. Enter the quoted rate and the compounding frequency per year 4. Press F1 to get the EAR If investments have different compounding periods you must compare their EARs to find the best one. Continuously Compounded Rate: set n= infinity I%: given % then press F1 Annual Percentage Rate - A compound rate where the compounding frequency equals the payment frequency - The APR must be disclosed for all non mortgage loans, to solve TVM problems with an APT, set: C/Y= the same value as P/Y EX: Bob wants to buy a $3,500 computer on monthly installments. He is offered a 2-year loan with a 16.9% APR. What is his monthly payment?

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