How do you calculate present value of an annuity

how do you calculate present value of an annuity

Finance Calculator

HP 12C

a. Future Value of a Regular Annuity

What is the Future Value of 10 equal end of period payments of $100 each, invested at an annual interest rate of 10 percent

Note:

All the Time Value of Money keys are on the left side first row of the calculator.

Always press the number first before pressing the Time Value of Money Keys.

Clear time value of money memory: f (the yellow key) FIN (third row fourth column, next to the ENTER bar)

Clear previous data: CLX (third row fifth column, next to the ENTER bar)

Enter number of years: N = 10 (press 10 and then N)

Enter interest rate: i (I/YR) = 10 (press 10 and then I/Y)

Enter payment: PMT = -100 (press 100, CHS to change sign, and then PMT)

Not using Present Value key: PV = 0 (press 0 and then PV)

Calculate unknown: Press FV. answer is $1,593.742

b. Unkown: Number of years .

$1,593.74 is needed sometime in the future. How long, investing $100 per year, earning 10 percent annually, would it take to amass this amount of money?

Clear time value of money memory: f (the yellow key) FIN (third row fourth column, next to the ENTER bar)

Clear previous data: CLX (third row fifth column, next to the ENTER bar)

Enter interest rate: i = 10

Enter payment: PMT = 100

Enter Future Value: FV = -1593.74

Not using Present Value key: PV = 0

Calculate unknown: Press N. answer is 9.999 (round to 10)

c. Unkown: Interest rate needed

Enter payment: PMT = 100

Enter Future Value: FV = -1593.74

Enter Present Value: PV = 0

Enter number of years: N = 10

Calculate unknown: Press i (I/YR), answer is 9.999 (round to 10)

d. Unknown: Payment .

To obtain an amount of $2000.00 ten years from now, earning 10 percent annually, what amount would have to be invested on a yearly basis?

Clear time value of money memory: f (the yellow key) FIN (third row fourth column, next to the ENTER bar)

Clear previous data: CLX (third row fifth column, next to the ENTER bar)

Enter Future Value: FV = -2000.00

Enter Present Value: PV = 0

Enter number of years: N = 10

Enter interest rate: i = 10

Calculate unknown: Press PMT. answer is $125.49

e. Present Value of a Regular Annuity

What is the present value of a 4 year annuity, with payments of $100 earning 10 percent annually?

Clear time value of money memory: f (the yellow key) FIN (third row fourth column, next to

the ENTER bar)

Clear previous data: CLX (third row fifth column, next to the ENTER bar)

Enter number of years: N = 4

Enter Interest Rate: i = 10

Enter Payments: PMT = $-100

Enter Future Value: FV = 0

Calculate unknown: Press PV. answer is $316.99

*** The previous problems all deal with a regular annuities. The next set deals with an annuity due. The difference being that with an annuity due, payments are made at the beginning of the compounding periods.

Annuities Due: Time Value of Money Problems using equal beginning of period payments.

To change the setting on the calculator from regular to annuity due:

g (the blue key) BEG, (BEG can be found on the right side above #7 key)

a. Unknown: FV or Future Value .

What is the Future Value of ten equal beginning of period payments of $100 each, invested at an annual interest rate of 10 percent.

Note:

All the Time Value of Money keys are on the first row of the calculator.

Always press the number first before pressing the Time Value of Money Keys.

Clear time value of money memory: f (the yellow key) FIN (third row fourth column, next to the ENTER bar)

Clear previous data: CLX (third row fifth column, next to the ENTER bar)

Enter number of years: N = 10

Enter amount of payments: PMT = -100 (press 100, CHS to change sign, press PMT)

b. Unknown: Number of years

Clear time value of money memory: f (the yellow key) FIN (third row fourth column, next to the ENTER bar)

Enter interest rate: i = 10

c. Unkown: Interest rate needed

Clear time value of money memory: f (the yellow key) FIN (third row fourth column, next to the ENTER bar)

Clear previous data: CLX (third row fifth column, next to the ENTER bar)

Enter Future Value: FV = 3000.00

Enter Present Value: PV = 0

Enter number of years: n = 10

Enter interest rate: i = 10

Calculate unknown: PRESS PMT. answer is $-171.12

e. Present Value of an Annuity Due

What is the present value of a 4 year annuity due, with payments of $100 earning 10 percent annually?

Clear time value of money memory: f (the yellow key) FIN (third row fourth column, next to the ENTER bar)

Clear previous data: CLX (third row fifth column, next to the ENTER bar)

Enter number of years: N = 4

Enter Interest Rate: i = 10

Enter Payments: PMT = $-100

Enter Future Value: FV = 0

Calculate unknown: PRESS PV. answer is $348.69

Source: homepages.wmich.edu

Category: Credit

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