Present Value (formula)

[pete_luc]

Hi All,

I am having a lot of difficulty with a PV function. I have the following info:

Col A Col B
Total Annual Contribution $2,480
Amount at Retirement $837,948
Annuity Amount (annual) $85,308

Employee Contribution 6.2%
Employer Contribution 6.2%
Years Contributing 40
Return on Investment 9.0%
Years of Annuity 25
Taxable Earnings $20,000


I want to calculate the annuity amount ($85308) and have been told it is done using the PV function. I get:

=PV(B12,B13,B4,-B5) i.e.
=PV(.09,25,2480,-837948) = $72,815.07

What am I doing wrong here ??????

Pete

[RET79]

Pete,

I suggest you are using the wrong formula.

The PV is the $837,948, rate is 9% and there are 25 payments. You want to calculate the value of each of those payments right?

This could be thought of as you giving someone a loan of $837,948 and them paying you back 25 payments @ 9%.

Consider using the PMT function.

=PMT(9%,25,-837948)

which gives you the desired result.

Hope this helps,

RET79

[RET79]

Even better.....

I think you mixed up two calculations here.

The first one is finding the future value of 40 annual payments of $2480, which gives you $837848

This can be calculated by using

=FV(9%,40,2480) = -$837848

In fact, you can combine your whole question in one formula, if you substitute the FV formula instead of -$837848 in the other calc, giving you:

=PMT(9%,25,FV(9%,40,2480)) = $85,308.39

Hope this helps,

RET79



[ This Message was edited by: RET79 on 2002-04-28 07:08 ]

[pete_luc]

Thanks Ret,

That's great !!!

: )

Pete