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Thread: Present Value (formula)

  1. #1
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    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

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    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

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    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 ]

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    Thanks Ret,

    That's great !!!

    : )

    Pete

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