The present value of an ordinary annuity, PAN, is the value today that would be equivalent to the annuity payments (PMT) received at fixed intervals over the annuity period. The equation is: Each payment of an annuity due is discounted for one less (1+1). The equation is: (1+DN M[] period, so the present value of an annuity due is equal to the present value of an ordinary annuity multiplied by PVAN= PMT PVA due = PVA ordinary (1+1) One can solve for payments (PMT), periods (N), and interest rates (I) for annuities. The easiest way to solve for these variables is with a financial calculator or a spreadsheet. Quantitative Problem 1: You plan to deposit $1,700 per year for 5 years into a money market account with an annual return of 2%. You plan to make your first deposit one year from today. a. What amount will be in your account at the end of 5 years? Do not round intermediate calculations. Round your answer to the nearest cent. $ b. Assume that your deposits will begin today. What amount will be in your account after 5 years? Do not round intermediate calculations. Round your answer to the nearest cent. Quantitative Problem 2: You and your wife are making plans for retirement. You plan on living 25 years after you retire and would like to have $95,000 annually on which to live. Your first withdrawal will be made one year after you retire and you anticipate that your retirement account will earn 10% annually.
The present value of an ordinary annuity, PAN, is the value today that would be equivalent to the annuity payments (PMT) received at fixed intervals over the annuity period. The equation is: Each payment of an annuity due is discounted for one less (1+1). The equation is: (1+DN M[] period, so the present value of an annuity due is equal to the present value of an ordinary annuity multiplied by PVAN= PMT PVA due = PVA ordinary (1+1) One can solve for payments (PMT), periods (N), and interest rates (I) for annuities. The easiest way to solve for these variables is with a financial calculator or a spreadsheet. Quantitative Problem 1: You plan to deposit $1,700 per year for 5 years into a money market account with an annual return of 2%. You plan to make your first deposit one year from today. a. What amount will be in your account at the end of 5 years? Do not round intermediate calculations. Round your answer to the nearest cent. $ b. Assume that your deposits will begin today. What amount will be in your account after 5 years? Do not round intermediate calculations. Round your answer to the nearest cent. Quantitative Problem 2: You and your wife are making plans for retirement. You plan on living 25 years after you retire and would like to have $95,000 annually on which to live. Your first withdrawal will be made one year after you retire and you anticipate that your retirement account will earn 10% annually.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The present value of an ordinary annuity, PAN, is the value today that would be equivalent to the annuity payments (PMT) received at fixed intervals over the annuity period. The
equation is:
Each payment of an annuity due is discounted for one less
(1 + I). The equation is:
PVAN= PMT
1-
(1+1)N
I
period, so the present value of an annuity due is equal to the present value of an ordinary annuity multiplied by
PVA due PVA ordinary (1+1)
One can solve for payments (PMT), periods (N), and interest rates (I) for annuities. The easiest way to solve for these variables is with a financial calculator or a spreadsheet.
Quantitative Problem 1: You plan to deposit $1,700 per year for 5 years into a money market account with an annual return of 2%. You plan to make your first deposit one year
from today.
a. What amount will be in your account at the end of 5 years? Do not round intermediate calculations. Round your answer to the nearest cent.
$
b. Assume that your deposits will begin today. What amount will be in your account after 5 years? Do not round intermediate calculations. Round your answer to the nearest
cent.
$
Quantitative Problem 2: You and your wife are making plans for retirement. You plan on living 25 years after you retire and would like to have $95,000 annually on which to live.
Your first withdrawal will made one year after you retire and you anticipate that your retirement account will earn 10% annually.
a. What amount do you need in your retirement account the day you retire? Do not round intermediate calculations. Round your answer to the nearest cent.
$
b. Assume that your first withdrawal will be made the day you retire. Under this assumption, what amount do you now need in your retirement account the day you retire?
Do not round intermediate calculations. Round your answer to the nearest cent.
$
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