Question

1.

(Pmt, FV=? ) what is the future value of an annuity of $9 invested every week for the next 2 years starting one week from now at 8.9% compounded every week?

2.

(PMT, N = ?) You need to borrow &117,119 today and can repay the money in installments of $11,760 every year stating next year. If the rate of return is 7.5%, how long do you expect to repay the loan

Answer 1

1. Formula for Future value of Annuity is

Where,

FVA = Future Value of Annuity

A = Annuity ($9)

i = Interest Rate

n= number of periods

Assuming there are 52 weeks in a year, then total period (n) = 52 * 2 = 104

Interest rate is 8.9% compounded weekly, so i = (0.089/52) = 0.00171154

FVA = 1023.52

2. Here we can use the present value of future annuity (PVFA) formula.

Where,

A = Yearly installment

i = rate of interest

n = number of periods

When we solve the above equation we will get, n = 19 years.

Lets verify it with the amortization table.