1 / 17

FV Annuity Formula

FV Annuity Formula. The future value of an annuity with n periods and an interest rate of i can be found with the following formula:. Financial Calculator Formula for Annuities. Financial calculators solve this equation:.

marilu
Download Presentation

FV Annuity Formula

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. FV Annuity Formula • The future value of an annuity with n periods and an interest rate of i can be found with the following formula:

  2. Financial Calculator Formula for Annuities Financial calculators solve this equation: There are 5 variables. If 4 are known, the calculator will solve for the 5th.

  3. Financial Calculator Solution INPUTS 3 10 0 -100 331.00 N I/YR PV PMT FV OUTPUT Have payments but no lump sum PV, so enter 0 for present value.

  4. Spreadsheet Solution • Use the FV function: see spreadsheet. • = FV(Rate, Nper, Pmt, Pv) • = FV(0.10, 3, -100, 0) = 331.00

  5. What’s the PV of this ordinary annuity? 0 1 2 3 10% 100 100 100 90.91 82.64 75.13 248.69 = PV

  6. PV Annuity Formula • The present value of an annuity with n periods and an interest rate of i can be found with the following formula:

  7. Financial Calculator Solution INPUTS 3 10 100 0 N I/YR PV PMT FV OUTPUT -248.69 Have payments but no lump sum FV, so enter 0 for future value.

  8. Spreadsheet Solution • Use the PV function: see spreadsheet. • = PV(Rate, Nper, Pmt, Fv) • = PV(0.10, 3, 100, 0) = -248.69

  9. Find the FV and PV if theannuity were an annuity due. 0 1 2 3 10% 100 100 100

  10. PV and FV of Annuity Due vs. Ordinary Annuity • PV of annuity due: • = (PV of ordinary annuity) (1+i) • = (248.69) (1+ 0.10) = 273.56 • FV of annuity due: • = (FV of ordinary annuity) (1+i) • = (331.00) (1+ 0.10) = 364.1

  11. Switch from “End” to “Begin”. Then enter variables to find PVA3 = $273.55. INPUTS 3 10 100 0 -273.55 N I/YR PV PMT FV OUTPUT Then enter PV = 0 and press FV to find FV = $364.10.

  12. Excel Function for Annuities Due Change the formula to: =PV(10%,3,-100,0,1) The fourth term, 0, tells the function there are no other cash flows. The fifth term tells the function that it is an annuity due. A similar function gives the future value of an annuity due: =FV(10%,3,-100,0,1)

  13. What is the PV of this uneven cashflow stream? 4 0 1 2 3 10% 100 300 300 -50 90.91 247.93 225.39 -34.15 530.08 = PV

  14. Financial calculator: HP10BII • Clear all: Orange Shift key, then C All key (in orange). • Enter number, then hit the CFj key. • Repeat for all cash flows, in order. • To find NPV: Enter interest rate (I/YR). Then Orange Shift key, then NPV key (in orange).

  15. Financial calculator: HP10BII (more) • To see current cash flow in list, hit RCL CFj CFj • To see previous CF, hit RCL CFj – • To see subseqent CF, hit RCL CFj + • To see CF 0-9, hit RCL CFj 1 (to see CF 1). To see CF 10-14, hit RCL CFj . (period) 1 (to see CF 11).

  16. Input in “CFLO” register: CF0 = 0 CF1 = 100 CF2 = 300 CF3 = 300 CF4 = -50 • Enter I = 10%, then press NPV button to get NPV = 530.09. (Here NPV = PV.)

  17. Spreadsheet Solution A B C D E 1 0 1 2 3 4 2 100 300 300 -50 3 530.09 Excel Formula in cell A3: =NPV(10%,B2:E2)

More Related