Calculate the Annuity Value, Knowing the Future Value.

Jim Hayes read that out west, a parcel of land could be purchased for $1000 cash. Jim decided to save a uniform amount at the end of each month so that he would have the required $1000 at the end of one year.

The local credit union pays 6% interest, compounded monthly. How much would Jim have to deposit each month?

SOLUTION

In this example,



Jim would have to deposit $81.10 each month.

If we use the sinking fund formula (Equation 4-6) and substitute for F the single payment compound amount formula (Equation 3-3), we obtain


We now have an equation for determining the value of a series of end - of - period payments- or disbursements -A when the present sum P is known.

The portion inside the brackets



is called the uniform.series capital recovery factor and has the notation (Aj P, i, n).

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