Interest Formulas - Equal Payment Series: Lecture No.5
Interest Formulas - Equal Payment Series: Lecture No.5
Interest Formulas - Equal Payment Series: Lecture No.5
Payment Series
Lecture No.5
0
A
P
0
F
0
N
0
2
N
A(1+i)N-2
A
A
A(1+i)N-1
F A(1 i)
N 1
A(1 i)
N 2
L A
F
0
3
N
(1 i ) N 1
FA
i
A( F / A, i , N )
Example 2.9:
Given: A = $5,000, N = 5 years, and i = 6%
Find: F
Solution: F = $5,000(F/A,6%,5) = $28,185.46
Validation
$5,000(1 0.06) $6,312.38
F =?
i = 6%
3
N
A=?
i
A F
N
(1 i) 1
F ( A / F , i, N )
Example:
Given: F = $5,000, N = 5 years, and i = 7%
Find: A
Solution: A = $5,000(A/F,7%,5) = $869.50
F=?
First deposit occurs at n = 0
i = 6%
0
Annuity
Due
F5 $5,000(F / A,6%,5)(1.06)
$29,876.59
Excel
Solution
Beginning period
=FV(6%,5,5000,0,1)
i
L
O
A FM
P
i
(
1
)
1
N Q
N
3
N
F( A / F, i, N)
Excel Solution
Given:
F = $100,000
i = 7%
N = 8 years
$100,000
Find:
0
1
=PMT(i,N,pv,fv,type)
=PMT(7%,8,0,100000,0)
=$9,746.78
A=?
i = 8%
i(1 i)
A P
N
(1 i) 1
P( A / P, i, N )
N
A=?
i = 6%
0
Grace period
P = $21,061.82(F/P, 6%, 1)
i = 6%
0
Two-Step Procedure
(1 i ) N 1
P A
i (1 i ) N
A( P / A, i , N )
Excel Solution
Given:
A = $7.92M
i = 8%
N = 25
Find: P
=PV(8%,25,7.92,0)
= $84.54M
A = $7.92 million
0
1
25
i = 8%
P=?
10
44
$2,000
10 11 12
44
$2,000
44
$2,000
Age
31
65
$317,233
11 12
44
$2,000
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
40
41
42
43
44
45
46
47
Year
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
37
38
39
40
41
42
43
44
Option 1
Option 2
$
$
$
$
$
$
$
$
$
$
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
Interest rate
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
(2,000)
0.08
FV of Option 1
$ 396,645.95
FV of Option 2
$ 317,253.34
Target cell
$ 79,392.61
Result
$396,644
10
44
$2,000
$317,253
10 11 12
44
$2,000