Annuities

 

You invest $1000 every six months at 4.8% compounded half-yearly.
(a) Use a spreadsheet function to find the value of the investment after 10 years.
(b) What contribution would be required for a future value of $30000?

Calculate the rate per period and number of periods

\[ \begin{align} \text{r} &= \frac{4.8}{200} \\ &= 0.024 \\ \text{nper} &= 10 \times 2 \\ &= 20 \end{align} \ \]

Calculate the future value

Using a spreadsheet Future Value function: \[ \begin{align} \text{Future Value } &= FV(0.024, 20, -1000) \\ &= 25289.09 \\ \end{align} \ \]

Use the spreadsheet PMT function to calculate the required payments

\[ \begin{align} \text{Payment }&= PMT(0.024, 20, 0, -30000) \\ &= 1186.28 \end{align} \ \]

Important This is not a 'textbook on a screen' - this is an interactive learning system. Which means you have to 'act' to make it go.

Look through the options below and select the one you think is the best response. You will gain most benefit if you work the problem with pen and paper as you go, i.e. decide what you think is the correct option and write down what you think the result will be before you click. If the next step doesn't display, click another option.

 

What the first thing you need to do?

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Now You Try:

You invest $1000 every three months at 2.1% compounded quarterly.
(a) Use a spreadsheet function to find the value of the investment after 11 years.
(b) What contribution would be required for a future value of $33000?

 

Find the future value
Find the present value
Calculate the rate per period and number of periods