![]() Suppose that you are planning to send your daughter to college in 18 years. Let's look at that problem again, but this time we'll treat it as an annuity problem instead of a lump sum: On the previous page, we looked at an example about saving for college. Or, maybe you want to know how much you will need to save each year in order to reach a particular goal (saving for college or retirement perhaps). For example, you might want to know how much a mortgage or auto loan payment will be. We often need to solve for annuity payments. How much would you have to repay?Īll we need to do is to put a 0 into PV to clear it out, and then press FV to find that the answer is -15,192.92972 ( a cash outflow).Įxample 2.2 - Solving for the Payment Amount Now, suppose that you will be borrowing $1000 each year for 10 years at a rate of 9%, and then paying back the loan immediate after receiving the last payment. Again, this is negative because it represents the amount you would have to pay (cash outflow) to purchase this annuity. Now press PV to solve for the present value. Enter the numbers into the appropriate keys: 10 into N, 9 into I/YR, and 1000 (cash inflow) into PMT. Press Shift C to clear the financial keys. In this case we need to solve for the present value of this annuity since that is the amount that you would be willing to pay today. If you can earn a rate of 9% per year on similar investments, how much should you be willing to pay for this annuity? ![]() ![]() Suppose that you are offered an investment which will pay you $1,000 per year for 10 years. In a regular annuity, the first cash flow occurs at the end of the first period.Īn annuity due is similar to a regular annuity, except that the first cash flow occurs immediately (at period 0). In this section we will take a look at how to use the HP 10BII to calculate the present and future values of regular annuities and annuities due.Ī regular annuity is a series of equal cash flows occurring at equally spaced time periods. In the previous section we looked at the basic time value of money keys and how to use them to calculate present and future value of lump sums. ![]() Are you a student? Did you know that Amazon is offering 6 months of Amazon Prime - free two-day shipping, free movies, and other benefits - to students? Click here to learn more ![]()
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