# Present and future value

In computing your answers to the cases below, you can round your answer to the nearest dollar. Present value tables are provided on the next page.

Case A: On January 2, 2004, Notson Company loaned $50,000 to Pine Company. The terms of this loan agreement stipulate that Pine is to make 5 equal annual payments to Notson at 10% interest compounded annually. Assume the payments are to begin on December 31, 2004. Compute the amount of each of these payments.

Case B: Rex Jeter, a lawyer contemplating retirement on his 65th birthday, decides to create a fund on an 8% basis which will enable him to withdraw $30,000 per year beginning June 30, 2007, and ending June 30, 2011. To provide this fund, he intends to make equal contributions on June 30 of each of the years 2002 through 2006.

(a) How much must the balance of the fund equal after the last contribution on June 30, 2006 in order for him to satisfy his objective?

(b) What are each of his contributions to the fund?

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#### Solution Preview

In computing your answers to the cases below, you can round your answer to the nearest dollar. Present value tables are provided on the next page.

Case A: On January 2, 2004, Notson Company loaned $50,000 to Pine Company. The terms of this loan agreement stipulate that Pine is to make 5 equal annual payments to Notson at 10% interest compounded annually. Assume the payments are to begin on December 31, 2004. Compute the amount of each of these payments.

PVA = PMT(PVIFAi,n) where i is the interest rate

n is the period.

50,000 = PMT(PVIFA10%, 5)

50,000 = PMT(3.79079)

PMT = $13,190

Case B: Rex Jeter, a lawyer contemplating retirement on his 65th birthday, decides to create a fund on an 8% basis which will enable him to withdraw $30,000 per year beginning June 30, 2007, and ending June 30, 2011. To provide this fund, he intends to make equal contributions on June 30 of each of the years 2002 through 2006.

(a) How much must the ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer how much must the balance of the fund equal after the last contribution on June 30, 2006 in order for him to satisfy his objective and what are each of his contributions to the fund.