ANNUITY, SINKING FUNDS, PMT, REG PRESENT VALUE

1. Sherry Siebert invests $2,000 at the end of each six months for five years. Assuming Sherry can receive 6%
interest compounded semiannually, what is the value of her investment at the end of five years?

Given: Solution:
PMT = $2,000 ❑n
(1+i)❑ −1
n= 5 years x 2 = 10 FV = PMT [ ]
i
i = 6% / 2 = 0.03 ❑10
(1+0.03)❑ −1
FV = 2,000 [ ]
0.03
FV = $22, 927.76

1. Robin wants to receive $2,500 at the end of each year for the next 10 years. How much should she deposit
today at 5% annually?

Given: Solution:
PMT = $2,500 1 ]
PV = PMT [1 − ¿
n = 10 years ¿¿
i = 5% or 0.05 1 ]
PV = 2,500 [1 − ¿
¿¿
PV = $19,304.34

2. Doubletree Capital Investments deposits $700 semiannually for 6 years into an account that pays 6%
interest. What is the balance after the last deposit?

Given: Solution:
PMT = $700 FV = PMT [¿ ¿]
n = 6 years x 2 = 12 FV = 700 [¿ ¿]
i = 6% / 2 = 0.03
FV = $9,934.42

3. Lisa Schermer wants to receive $5,000 a year for 12 years. How much must she invest today at 12%
interest compounded annually?

Given: Solution:
PMT = $5,000 1 ]
n = 12 years PV = PMT [1 − ¿
¿¿
i = 12% or 0.12 1 ]
PV = 5,000 [1 − ¿
¿¿
PV = $30,971.87

4. Alice Hall made deposits of $300 semiannually to Rey Bank, which pays 8% interest compounded
semiannually. After five years Alice made no more deposits. What would be the balance in the account four
years from the last deposit?

Given: Solution:
PMT = $300 ❑n
(1+i)❑ −1
n = 5 years x 2 = 10 FV = PMT [ ]
i = 8% / 2 = 0.04 i
10
(1+0.04 )❑ −1
FV = 300 [ ]
0.04
FV = 3,601.83
n = 4 years x 2 = 8

FV = PV(1+i)❑n
FV = 3,601.83(1+0.04)❑8
FV = $4,929.35
5. How much will the Apple Corporation have to set aside each period to have $40,000 eight years from now?
Assume money is at 12% compounded semiannually.

Given: Solution:
PMT = 40,000
PV =
FV
n = 8 years x 2 = 16 ¿¿
i = 12% / 2 = 0.06
PV =
40,000
¿¿
PV = 15, 745.85

i
PMT = PV [ ]
1− ¿ ¿
0.06
PMT = 15,745.85 [ ]
1− ¿ ¿
PMT = $1,558.09

6. In 10 years, Longin Company will have to repay a $60,000 loan. Assume a 4% interest rate compounded
quarterly. How much must Longin pay each period to have the $60,000 at the end of 10 years? Verify your
result.

Given: Solution:
PMT = 60,000
PV =
FV
n = 10 years x 4 = 40 ¿¿
i = 4% / 4 = 0.01
PV =
60 , 00
¿¿
PV = 40,299.19

i
PMT = PV [ ]
1− ¿ ¿
0.01
PMT = 40,299.19 [ ]
1− ¿ ¿
PMT = $1,227.34

7.

Given: Solution:
PMT = 40,000
PV =
FV
n = 7 years x 4 = 28 ¿¿
i = 8% / 4 = 0.02
PV =
40 , 00
¿¿
PV = 22,974.98

i
PMT = PV [ ]
1− ¿ ¿
0.02
PMT = 22,974.98 [ ]
1− ¿ ¿
PMT = $1,079.59
8. Roger Fox made deposits of $900 semiannually to Reed Bank, which pays 6% interest compounded
semiannually. After seven years Roger made no more deposits. What will be the balance in the account eight
years after the last deposit?

Given:
PMT = 900 Solution:
n = 7 years x 2 =14 ❑n
(1+i)❑ −1
i = 6% / 2 = 0.03 FV = PMT [ ]
i
14
(1+0.03)❑ − 1
FV = 900 [ ]
0.03
FV = 15,377.69
n = 8 years x 2 = 16

FV = PV(1+i)❑❑n
FV =15,377.69 (1+0.03)❑16
FV = $24,676.68

PV of Annuity
- usually the question is like about an investment where you keep adding money per month or per year
- Ex: Helaina deposits 2,000,000 every month for 10 years and it grows 10% annually hm will she
have?
- so if annuity parang puro additional ng add'l ng money

PV Regular
- you just let the money sit in the bank and you don’t touch it
- Ex: Helaina deposits 10,,000 in the bank and it grows 8% interest annually. Hm will she have in 10
yrs?
- you don’t touch it nor add anything, you just leave it as it is

20-30). Ameila Jones would like to set up a sinking fund to pay for a $5,600 surprise anniversary vacation for
her mother and father in 5 years. How much does she need to set aside at the end of each 6 months at 6%
compounded semiannually in order to reach her goal?

20-31). Ajax Corporation has hired Brad O’Brien as its new president. Terms included the company’s agreeing
to pay retirement benefits of $18,000 at the end of each semiannual period for 10 years. This will begin in
3,285 days. If the money can be invested at 8% compounded semiannually, what must the company deposit
today to fulfill its obligation to Brad?