Your Financial Statements and Plans: Future Value of Annuity

1
Chapter 2

• Your Financial Statements and Plans Future Value
  of Annuity

2
Annuities

• A series of equal dollar payments for a specified
  number of time periods
• Payments come at the end of each period
• Examples -- life insurance benefits, lottery
  payments, retirement payments

3
Future Value of Annuity

• If your parents put aside 4,500 yearly for your
  sister's college fund, will they have the 20,000
  in four years?
• Assume the money can be invested at 8.

4
Future Value of Annuity
5
College Fund -- Using Calculator

• Input
• PMT - 4,500
• n 4
• i 8
• Compute FV
• 20,277.50

Yes, they will have the 20K needed.
6
Solving for the Payment

• Your parents need 20,000 for your sister's
  college, not more than that.
• They want to know how much money to put away each
  year in order to have exactly 20,000 in 4 years.
  They can earn 8 on their investments.

7
Solve for payment with calculator

• Input
• FV - 20,000
• n 4
• i 8
• Compute PMT
• 4438.42

8
Solving for the Payment

• Your parents need 20,000 for your sister's
  college, not more than that.
• They want to know how much money to put away each
  quarter in order to have exactly 20,000 in 4
  years. They can earn 8 compounded quarterly on
  their investments.

9
Solve for payment with calculator

• Input
• FV - 20,000
• n 16
• i 2
• Compute PMT
• 1,073

10
Questions on Future Value of Annuity?