Lesson 6: Regular Payment of an Annuity April 5/11

Rearrange the equations to isolate R: Future Value (A) Future value questions involve saving up money in order to reach a specific goal or to have enough money for a purchase/fund.

Present Value (PV) Present value questions involve paying off loans or withdrawing funds from money that is already in an account.

EX1: Katy is saving up for a down payment on a house. She wants to have $15 000 saved up in 4 years time. How much should Katy put away every month if her account earns interest at 4.2%/a (compounded monthly) in order to reach her goal? (What should Katy’s monthly deposit be?) This question uses the AMOUNT or FUTURE VALUE formula because it involves savings

R=? A= 15 000

EX2: A deposit of $30 000 is made into an account at 5.1%/a compounded monthly in order to provide one scholarship per year for the next 25 years. The money is already in the account and it is being drawn out of it for the scholarship one time/year. This means you have to use the PRESENT VALUE formula

a) Determine the value of each scholarship R=? PV=30,000

b) How much extra money is able to be given out by investing the $30 000 (how much is earned as interest?)