FutureValueofanAnnuity
Equation(cont’d)
•Thisequationisusedtodeterminethefuture
valueofastreamofpaymentsinvestedinthe
present,suchasthevalueofyour401(k)
contributions.
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Future Value - Asset Managment - Lecture Slides, Slides of Management Fundamentals
Asset Management is an important subject in Economics. In these Lecture Slides, following concepts are discussed : Future Value, Equation, Stream of Payments, Value, Contributions, Invested, Contributions, Calculating, Annuity, Future Value
Typology: Slides
2012/2013
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Future
Value
of
an
Annuity
Equation
(cont’d)
This equation is used to determine the future value of a stream of payments invested in the present, such as the value of your 401(k) contributions.
Calculating
the
Future
Value
of
an
Annuity:
An
IRA
Assuming $ annual contributions with 9% return, how much will an IRA be worth in 30 years? FV n = PMT (FVIFA i, n ) FV 30 = $ (FVIFA 9%, yr ) FV 30 = $ (136.305) FV 30 = $272,
Present
Value
of
an
Annuity
Equation
(cont’d)
This equation is used to determine the present value of a future stream of payments, such as your pension fund or insurance benefits.
Calculating
Present
Value
of
an
Annuity:
Now
or
Wait?
What is the present value of the 25 annual payments of $50, offered to the soon ‐ to ‐ be ex ‐ wife, assuming a 5% discount rate? PV = PMT (PVIFA i,n ) PV = $50, (PVIFA 5% , 25 ) PV = $50, (14.094) PV = $704,
Buying
a
Car
With
Four
Easy
Annual
Installments
What are the annual payments to repay $6, at 15% interest? PV = PMT(PVIFA i%,n yr ) $6, = PMT (PVIFA 15%, 4 yr ) $6, = PMT (2.855) $2,101. = PMT
Perpetuities
Definition
an annuity that lasts forever
PV
PP
i
PV
the present value of the perpetuity - PP = the annual dollar amount provided by the perpetuity - i = the annual interest (or discount) rate
Summary
(cont’d)
Annuity
a periodic series of equal payments for a specific length of time
Future value of an annuity
the value, in the future, of a current stream of investments
Present value of an annuity
today’s value of a stream of investments received in the future
Summary
(cont’d)
Amortized loans
loans paid in equal periodic installments for a specific length of time
Perpetuities
annuities that continue forever