a = x(1 + i)

1
r = (1 + i)
1
S
n
=
a (1 r
n
)
1 r
(for r < 1)
P =
x(1 + i)
1

1 ((1 + i)
1
)
n

1 (1 + i)
1
=
x[1 (1 + i)
n
]
(1 + i)[1 (1 + i)
1
]
=
x[1 (1 + i)
n
]
1 + i 1
=
x[1 (1 + i)
n
]
i
Present value of a series of payments:
P =
x[1 (1 + i)
n
]
i
If we are given the present value of a series of payments, we can calculate the value of
the payments by making x the subject of the above formula.
Payment amount:
x =
P i
[1 (1 + i)
n
]
Worked example 8: Present value annuities
QUESTION
Andre takes out a student loan for his rst year of civil engineering. The loan agreement
states that the repayment period is equal to 1,5 years for every year of nancial assis-
tance granted and that the loan is subject to an interest rate of 10,5% p.a. compounded
monthly.
1. If Andre pays a monthly installment of R 1446,91, calculate the loan amount.
2. Determine how much interest Andre will have paid on his student loan at the
end of the 18 months.
120 3.4. Present value annuities