TVM11 - Future Value of an Ordinary Annuity Due, Retirement Problem

Audio Transcript

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

You would like to create a retirement fund. You deposit $3,000 today in a savings account that earns 6.5% interest. You plan to deposit $3,000 every year for a total of 35 years. How much cash will you accumulate in your retirement savings account when you retire in 35 years?

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

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

The number of periods – NPER  – is 35

The interest rate – Rate – is 6.5%

The payment – PMT – is ($3,000.00)

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

For Type = 1, since payment occurs at the beginning of the period

Hit OK

The FV  is $396,291