Future Value of Your Savings
Suppose you save $1,500 per year for 15 years, beginning one year from today. The
savings bank pays you 8% interest per year.
How much will you have at the end of 15 years?
 (1  r ) n  1
FVA15  CF

r


 (1.08)15  1
 $1,500
  $1,50027.1521
r


= $ 40,728.17
Present Value of Your Bank Loan
Cindy agrees to repay a loan in 24 monthly installments of $250 each. If the interest
rate on the loan is 0.75% per month, what is the present value of the loan payments?
 (1  r ) n  1
PVA 24  CF
n 
 r (1  r ) 
 (1.075) 24  1 
 $250
 $25021.8891
24 
 0.075(1.075) 
= $ 5,472.280
Installment Payments on a Loan
Rob borrows $10,000 to be repaid in four equal annual installments, beginning one
year from today. What is Rob’s annual payment on this loan if the bank charges him
14% interest per year?
 r (1  r ) n 
CF  PVA n 

n
 (1  r )  1
 0.14(1.14) 4 
 $10,000
  $10,000[0.343205]
4
 (1.14)  1 
= $3,432.05
Present Value of Perpetuity
What is the present value of perpetuity of $270 per year if the interest rate is 12% per
year?
PV perpetuity = CF/ r = $ 270/ 0.12= $2,250