Question

13. You own an ordinary annuity contract that will pay you RM3,000 per year for 12 years.
You need money to pay back a loan in 6 years, and you are afraid if you get the annuity
payments annually you will spend the money and not be able to pay back your loan. You
decide to sell your annuity for a lump sum of cash to be paid to you five years from today.
If the interest rate is 8%, what is the equivalent value of your 12-year annuity if paid in
one lump sum five years from today?

Answer 1

At the End of Year	Annuity Installment Yearly	Equivalent Amount At the End of 5th Year	Formula
1	3000	4081.47	=B2*(1+0.08)^(5-A2)
2	3000	3779.14	=B3*(1+0.08)^(5-A3)
3	3000	3499.20	=B4*(1+0.08)^(5-A4)
4	3000	3240.00	=B5*(1+0.08)^(5-A5)
5	3000	3000.00	=B6*(1+0.08)^(5-A6)
6	3000	2760.00	=B7*(1-0.08)^(A7-5)
7	3000	2539.20	=B8*(1-0.08)^(A8-5)
8	3000	2336.06	=B9*(1-0.08)^(A9-5)
9	3000	2149.18	=B10*(1-0.08)^(A10-5)
10	3000	1977.24	=B11*(1-0.08)^(A11-5)
11	3000	1819.07	=B12*(1-0.08)^(A12-5)
12	3000	1673.54	=B13*(1-0.08)^(A13-5)
		32854.09514

Hence an equivalent amount at the end of 5th year would be RM32,854.09