cee ONS EOS ELBE EE NDEI ONS Mane 8.5 Ani nuities: Present Value 8.6 Using Tech to Investigate Financial Problems Homework: Pages 520-52 Le Q#12 from 8.4: Refer to the Excel file posted on the Moodle ing Objectives/S 4,8, 11, 15,18 ess Cri : At the end of this lesson I will be able to: Draw timelines and calculate present value (PV) for simple ordinary annuities Use amortization schedules to investigate financial problems You need to set up an amortization schedule to find the number of compounding periods because the remaining amount of the balance is incuring interest AND the initial balance is being paid down simultaneously InterestRate | Payment | Payment | Interest Paid Principal Paid Balance Period S i 18%/a $10 000 1 250 0.00410 000 250-40 10 000-210 4.8% /12 _ _ 0.00, =210 =9790 = 0.4%/month 2 250 0.004*9790 250-39.16 9790-210.84 = 0.004 579.16 3 20 Ip ~ 2163, _ = 9367.48, 4 200 436% .45- 212-5. 2 4134.45 n 250 0.004*Balancesns | 250-Interest paid, | BalanceyyPrincipal Paid, tion schedule: A record of payments showing the interest paid, the principal, and the current balance on a loan or investment 8.5 Present value: The amount invested NOW to yield a larger amoun the future. To calculate the present value, you must find the sum of all the present values of the payments of the annuity. Ms. Choo has won the lotto and wants to set up a scholarship to assist MMHS students who would like to go to a post-secondary institution, She wants to ensure that che student will have $6000 per year for five years. {ow much money should she give to MMHS, now, to ensure that this can happen, if MMHS is able to invest the money at 10%/a, compounded annually? by: 2B Draw a timeline: . 0.10 o 1 2 8 4 8 BASES 4-4 a 2 4e0 G99 490 6900 4600 (Hol) 2 000 209a oe Cova pounding pertoas Timeline: = 2 ae RO! Formula: Snz r= ei) r -n = Racy! [ai -1] ae Ie = RTC -1 - a | Py - | Practice: - 1. Winston wants to borrow money to buy a car. He can borrow $7500 at 10%/a compounded quarterly WOT ROY eee acca» ROW! +Rcsi) - RE eae) J if he repays the loan by making equal payments for 4 years: a. Calculate the quarterly payments required b. [fall variables remain unchanged and he pays $350 per month, what is the present value of the car? 2. Stefania’s parents calculate that they will need $7500 every 3 months for 4 years to pay for Stefania’s college. They have 18 years until she is college age. How much should they invest every 3 months at 6.4%/a compounded quarterly for the next 18 years if they plan to withdraw $7500 per quarter for the years after that? _ Annuities Summary: | Future Value Present Value Formula — 7 * = py RIG+i)"=1) | -a+] | | i TV = Putuve value PY = present Value R= paymente R= paymnonts | ie intveah rade per compounding penod | | n= & of comprureting periecte n "Teng Tepeapows theright warren tele | ak pe Vi? | eIBV, a Snz 7500 Pye ROU dey] i- ¥ * 0.025 1 be 16.5 Bein 48 2) Re ago Ae? ne nig ° ‘ = Fl 42 23 a2 eee ee 2 oR 8 ROR is 9.004 \ Le 4 | - * o.0lbe Ne? 738 ay 35 8 pp Ne4aa 9" 209509. i500 imo 7900 Filta g a = 0.084 i ; | q - , | Oo 7500 [ 2.01% ~ 105 134.86 @ Fy. FUN mor > os TC + 4787.60 6) (oot) o.o1byt? = 14