Future Value

Calculate the future value of $9,000 in 2, 7 & 20 years at the annual interest rates of 6, 10 & 12%
respectively. Redo the final calculation assuming the interest is semi-annual.

Solution
FV = PV  FVIF Calculator
$9,000  1.124 = $ 10,116 (n = 2, %i = 6) $ 10,112
$9,000  1.949 = $ 17,541 (n = 7, %i = 10) 17,538
$9,000  9.646 = $86,814 (n = 20, %i = 12) 86,817
$9,000  10.286 = $92,574 (n = 40, %i = 6) 92,571

Calculate the future value of 6 payments at the end of the year of $10,000 with an annual interest
rate of 8%. Redo this calculation assuming semi-annual interest.

Solution
FVA = A  FVIFA Calculator
$10,000  7.336 = $73,360 (n = 6, %i =8) $73,359
$10,000  15.026 = $150,258 (n = 12, %i = 4) 150,258

Present Value
Calculate the present value of $9,000 in 7, 5 & 20 years at the annual interest rates of 8, 10 & 6%
respectively. Redo the final calculation assuming the interest is semi-annual.

Solution
PV = FV  PVIF Calculator
$ 9,000  .583 = $5,247 (n = 7, %i = 8) $ 5,251
$ 9,000  .621 = $5,589 (n = 5, %i = 10) 5,588
$ 9,000  .312 = $2,808 (n = 20, %i = 6) 2,806
$ 9,000  .307 = $2763 (n = 40, %i = 3) 2,759

Calculate the present value of 6 payments at the end of the year of $10,000 with an annual
interest rate of 8%. Redo this calculation assuming semi-annual interest.

Solution
FVA = A  FVIFA Calculator
$10,000  4.623 = $46,230 (n = 6, %i =8) $46,229
$10,000  9.385 = $93,850 (n = 12, %i = 4) 93,851

Deferred annuity
You are considering purchasing an investment that will pay $80,000 over ten years beginning at
the end of 2006. It is currently the beginning of 2003 and the interest rate throughout the period
will be 13%. What should you pay for the investment today?
Solution
The value of the annuity at the beginning of the year it starts (2006) is:

PVA = A  PVIFA (Appendix D) Calculator

= $8,000  5.426 (n = 10, %i = 13) $43,410
= $43,408

To find the present value at the beginning of 2003 we discount from:

the beginning of 2006 for 3 periods: (2003, 2004, 2005)

PV = FV  PVIF (13%, 3 periods) Calculator

= $43,408  .693
= $30,083 $30,085
The maximum that should be paid for the annuity is $30,085.