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What is the present value and payment on these accounts?

20 Mar

What is the present value of an ordinary annuity that has $230 monthly payments for 12 years if the account receives 8 3/4 % interest.

present value = $

What are the payment(s) on this account? Find the monthly payments for an ordinary annuity that will yield a future value of $500000 at 6 1/4% interest for 29 years.

payment = $

 
2 Comments

Posted in Value of Future Payments

 

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  1. bijjee

    March 20, 2010 at 6:28 am

    very confusing

     

  2. teddy boy

    March 20, 2010 at 7:24 am

    1) Given: R = $230, monthly payments for 12 years ordinary annuity
    n = periods = 12 x 12 = 144
    i = 8 3/4%/12 = 0.7292% or 0.007292

    Find: Present value

    Solution:
    Let An = present value
    An = R[{1 - (1 + i)^-n}/i]
    An = 230[{1 - (1 + 0.007292)^-144}/0.007292]
    An = 20462.28 ANS

    2) Given: $500,000 = future value for ordinary annuity
    i = 6 1/4%/12 = 0.52083% or 0.0052083
    n = 29 yrs x 12 = 348

    Find: monthly payments for ordinary annuity

    Solution: Let R = monthly payments
    Let Sn = future value = 500,000

    Sn = R[(1+i)^n - 1]/i

    Solving for R:

    R = Sn/{[(1+i)^n - 1]/i}
    R = 500,000/{[1.0052083^348 - 1]/0.0052083}
    R = $510.93 ANS

    Hope this helps.

    teddy boy