Business/ Annuities

Question

Find the payment that should be used for the annuity due whose future value is given. Assume that the compounding period is the same as the payment period.

$10,000; quarterly payments for 12 years; interest rate 5.1%

What should the payment be?

Answer 1

 

 - - - p1 - - - p2 - - - p3 - -   - - p48FV=10,000

 

N = 48

i% = 5.1/12 = 1.275%

FV = 100,000

PV = 0

PMT = ?

 

If you are making 48 payment starting at p1 in the diagram, you have to make payments of $152.33 ti accumulate a future amount of $10,000. This is the same as payments on an ordinary annuity which assumes that p1 is the end of the first period.