TVM10 - Future Value of an Annuity, Unknown Payment

Audio Transcript

This is a future value of an annuity problem in which the payment is the unknown.

 Assume that you plan to accumulate $30,000 for a down payment on a house six years from now. For the next six years, you earn an annual return of 10%, compounded semi-annually. How much should you deposit at the end of each six-month period? This is a future value of an annuity problem in which the payment is the unknown.

This is a future value of an annuity problem, in which the payment is the unknown.

First, plug in the known values into the appropriate cells:

The number of periods – NPER – is 12 or 6 times 2

The interest rate – Rate – is 5.0% or 10% divided by 2

The future value – FV  – is $30,000.00

Going to the formulas tab, look for the PMT function.

The function wizard pops up

Select Rate,

Select NPER,

Select FV

Hit OK

The PMT is $1,885