Question

What constant payment for the next 10 years (starting 1 year from now, 10 payments) would be equivalent to receiving $650 every other year starting 10 years from now. Assume the annual cost of capital is 12%.

Answer 1

Amount Required after 10 Years = $ 650 * PVAF(12%, 10 yrs)

Amount Required after 10 Years = $ 650 * 5.65

Amount Required after 10 Years = $ 3,672.5

Amout required to be Contributed every year

Constant payment * FVAFDue(12%,10 yrs) = $ 3,672.5

Conatant Payment * 36.46 = $ 3,672.5

Conatant Payment = $ 3,672.5/36.46

Conatant Payment = $ 100.72

Computation of FVAFDue(12%,10 periods)

FVAFDue = {[(1+i)^(n-1) - 1)]/i} + 1

FVAFDue = [(1+(0.12))^(10 - 1)/(0.12)] + 1

FVAFDue = [(2.7731 - 1)/0.12] + 1

FVAFDue = (1.7731/0.12) + 1

FVAFDue(12%,10yrs) = 35.46 + 1 = 36.46

Calculation of PVAF
PVAF(i%, n Periods)	=	(1-(1+i)^-n)/i
(1+i)^-n	=	(1+0.12)^(-10)
(1-(1+i)^n)/i	=	5.6500