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Q: calculating payment amount for annuity ( Answered ,   4 Comments )
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 Subject: calculating payment amount for annuity Category: Business and Money > Finance Asked by: chrisn-ga List Price: \$5.00 Posted: 23 Oct 2003 13:09 PDT Expires: 22 Nov 2003 12:09 PST Question ID: 269131
 Subject: Re: calculating payment amount for annuity Answered By: answerguru-ga on 23 Oct 2003 16:15 PDT Rated:
 Hi chrisn-ga, Here is your question again: A person wishes to have \$992354.70 after 40 years with 7% interest compounded annually. He needs to make equal payments each year. Here is how you solve this type of problem: This is a present value annuity problem - these types of annuities are solved using the following formula: PV annuity = C*((1 - (1/(1+r)^t))/r) where: C = Periodic cash payments r = interest rate t = number of periods You are already given the PV annuity value, interest rate, and number of periods, so we can solve for C: \$992354.70 = C*((1 - (1/(1+0.07)^40))/0.07) C = \$992354.70 / ((1 - (1/(1+0.07)^40))/0.07) = \$992354.70 / (0.9332/0.07) = \$992354.70 / 13.332 = \$74435.67 So this person will need to make annual payments of \$\$74435.67 in order to have the desired amount in 40 years given an interest rate of 7%. Hopefully this helps you understand the calculation behind this value. If you have any problems understanding the information above please let me know :) Cheers! answerguru-ga
 chrisn-ga rated this answer: Thank you. That is exactly what I was looking for.