PRESENT VALUE OF AN ORDINARY ANNUITY MCF 3M0
1. For each ordinary annuity, PMT [1 (1 i ) N ]
i) determine the values of the unknown variables PV
ii) calculate the future value
Payment Payment Interest Term
($) Interval Rate (%) (years)
300 Monthly 6 Monthly 3
5000 Annual 5.8 Annual 10
1500 Semi-annual 4.6 Semi-annual 4
650 Quarterly 4 Quarterly 5
2. Determine the present value of each ordinary annuity:
a) yearly payments of $5000 at 7% per annum, compounded annually for 10 years.
b) quarterly payments of $800 at 3% per annum, compounded quarterly for 4 years.
c) monthly payments of $300 at 6% per annum, compounded monthly for 3 years.
3. Nicole has inherited some money. She wants to invest some of it so that she will receive a
monthly income of $750 for 10 years, starting 1 month from today. How much must she invest
today, at 4.5% per annum, compounded monthly?
4. Jose has 15 monthly payments of $231.73 left on his student loan. Interest on the loan is 9% per
annum, compounded monthly. If the bank will let Jose pay off his loan today, how much will he
have to pay?
5. Gurpinder had $5000 cash for a down payment on a car. He took out a loan at 9% per annum,
compounded monthly to pay for the rest. His monthly payments will be $445.20 for the next 3
years. What is the price of the car?
6. A service club is creating a fund so that scholarships of $5000 can be paid out to eligible students
every year for 20 years, starting next year. How much does the club need to invest today, at 6.5%
per annum, compounded annually?
7. Zainab was awarded an insurance settlement that consists of an initial payment of $1 000 000.
The rest of the settlement has been invested at 7% per annum, compounded semi-annually, so
that she will receive payments of $100 000 every 6 months for the next 10 years. What is the
value of her settlement?
1. ii. $9861.30, $37151.66, $10847.51, $11729.61
2. a) $35117.91 b) $12019.45 c) $9861.30
3. $72366.99 4. $3275.97 5. $19000.12
6. $55092.54 7. $2421240.33