BU111 Lecture 12: Lecture 12 2016-10-26
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Pv = fv / (1+r)^n: r = 0. 05, fv = , n = 4, pv = / (1+. 05)^4 = ,468. 11. 100 [ ((1+0. 04)^3 1)/ 0. 04] (1+. 04) = 312. 16 (1. 04) = . 65. Annuity: multiple but equal payments over equal periods of time. Ordinary annuity = payment does not start today. Sample problem: how much will you have in your retirement account in 10 years if you deposit per year starting at the end of this year (assume 3% compounded annually). Fv (ordinary annuity) = pmt[ ((1+r)^n -1)/r: pmt = , r = 0. 03, n = 10 years. Fv (ordinary annuity) = [((1+. 03)^10 1) / 0. 03] = ,731. 94. Fv (annuity due) = pmt[ ((1+r)^n 1)/r](1+r: pmt = , r = 0. 03, n = 10 years. Fv (annuity due) = [((1. 03)^10 1)/0. 03](1. 03) = ,903. 9. Fv (ordinary annuity) = pmt[((1+r)^n 1/ r: fv = ,000, r = 0. 04, n = 10. 20000 = pmt [((1. 04)^10 1)/0. 04] = 20000/ [((1. 04)^10 1)/ 0. 04] = ,665. 82.
