Annuity: Payment or Rent
Annuity: Present Value
	PV = Present Value P = Payment or Rent  A = Future Value i =  r ÷ k,  r = is annual rate, k = number of periods per year n = number of years

Compound Interest and Annuities Click  for Calculator

Having just won $1,000,000 after taxes in the state lottery, how much money can you withdraw at the end of each quarter for 20 years if the banks pays 10% interest compounded quarterly.

Solve	Step
i = 0.10 ÷ 4 = 0.025	k = 4, r = 0.10, Quarterly means 4 times a year
	A is present value= 1,000,000 n = 20 years
	Find the Future Value
You would withdraw $29,026.40 every 3 months for 20 years.
Enter 1,000,000 × 0.025 ÷ ( 1 -  1.025 xy ( -4 × 20 ) )    [enter or =] in your calculator
Hint: don't round until you are completely finished with your calculations.

  

Having just won $1,000,000 after taxes in the state lottery, how much money can you withdraw at the end of each month for 20 years if the banks pays 6% interest compounded monthly.

	[Solution]

You want to deposit enough money into the bank so that you can withdraw $5,000 at the end of each month for 60 months.  If the banks pays 12% interest compounded monthly, how much money should you deposit?

Solve	Step
i = 0.12 ÷ 12 = 0.01	k = 12, r = 0.12, Monthly means 12 times a year
	P is payment = 5000, n = 5 years (60 months)
	Find the Present Value
You would have to deposit $224,775.19 so that you can withdraw $5,000 a month for 60 months.
Enter 5,000 × ( 1 - 1.01 xy - 60 )  ÷ .01  [enter or =] in your calculator
Hint: don't round until you are completely finished with your calculations.

 

You want to deposit enough money into the bank so that you can withdraw $10,000 at the end of each month for 10 years.  If the banks pays 9% interest compounded monthly, how much money should you deposit?

	[Solution]

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Joe McDonald
Community College of Southern Nevada