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PV and FVIFA

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I'm trying to find the formula in excel to help calculate the answers for part 1 of this problem. I do not understand how $13,421 was calculated. I tried using FV and I do not have enough variables to calculate the answer.

You need $28,974 at the end of 10 years, and your only investment outlet is an 8 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year.

1. What single payment could be made at the beginning of the first year to achieve this objective?

Amount x (1+ 8%)^ 10= $28,974
Therefore Amount= $13,421

Answer: $13,421

I do not understand how the answers 14.486562 was calculated only using the periods and interest rate.

2. What amount could you pay at the end of each year annually for 10 years to achieve this same objective?

FVIFA= Future Value Interest Factor for an Annuity

n= 10
r= 8.00%
FVIFA (10 periods, 8.% rate ) = 14.486562

Future value= $28,974
Therefore, annuity= $2,000 =28974/14.486562

Answer: $2,000

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Solution Summary

This solution is comprised of a detailed explanation to answer how to use excel to calculate PV and how 14.486562 was calculated only using the periods and interest rate.

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I'm trying to find the formula in excel to help calculate the answers for part 1 of this problem. I do not understand how $13,421 was calculated. I tried using FV and I do not have enough variables to calculate the answer.

You need $28,974 at the end of 10 years, and your only investment outlet is an 8 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an ...

Purchase this Solution


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