Annuity compounded annually

TonyC

New member
Joined
Aug 22, 2005
Messages
17
I am having trouble with the following problem:
What will be the value of an annuity in today's dollars if $1000 is to be deposited for 18 years into an account paying 4.5% interest compounded annually?

I used the following formula (I'm guessing I've figured something incorrectly)

A= P[(1 + r)^m - 1]/r

P=1000
r=i/n
i=4.5% or .045
n=1
t=18
m=n(t) or 18

1000[1 + .045)^18 - 1/.045

I know this is incorrect because my choices are multiple choice :?:
 
Why are you accumulating to the end of the annuity? The problem statement says "today's dollars". You should be using a DISCOUNT formula, not an accumualtion formula.
 
TonyC said:
A= P[(1 + r)^m - 1]/r
P=1000
r=i/n
i=4.5% or .045
n=1
t=18
m=n(t) or 18
1000[1 + .045)^18 - 1/.045

I don't follow what you're trying...
The formula is:
A = P(1 - x) / r where x = 1 / (1 + r)^t
 
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