Question

Kenneth decides to put away an amount of R400,00

for 15 years, at the end of every month, towards a retirement annuity that earns interest at 10%

per year, compounded monthly. Determine the present value of the annuity?

Answer 1

The present value of the annuity can be calculated using PV Function in excel.

PV (rate, nper, pmt, [Fv], [type])

• Rate The interest rate for the loan.
• Nper  The total number of payments for the loan.
• Pmt Payment per period
• Pv    The present value
• Fv The future value
• Type The number 0 (zero) or 1 and indicates when payments are due.

Step 2

Number of periods

= Number of years * 12 months per year

 

Yield to maturity rate

= Per annum rate $\div$ 12

The present value of the annuity is R 3722297.55