Case 2, Client 3 Help Sheet Needs

1. $50,000 FV for down payment on house in 7 years; how much do they need to pay each year for 7 years to have $50,000; 11% rate

Annuity payment x FV annuity factor = FV of annuity

Annuity payment x FV annuity factor = $50,000 Annuity payment = ?

2. $1,500 a year income for them (annuity payment) for 30 years; need to first figure out the present value of this future payment stream (Annuity); 11% rate

Annuity payment x PV annuity factor = PV of annuity

$1,500 x PV annuity factor = PV of Annuity

Once we know the PV of Annuity which is what they will need, we must find out what kind of payment they will need to make over the next 7 years so they will have this amount available. Therefore, how much do they need to pay each year for 7 years to have the PV of Annuity amount available at this future time? Annuity payment x FV annuity factor = FV of annuity

3. Now, what is the total of these two payments in 1 and 2 above?