For the cash flows shown, determine the equivalent uniform annual worth in years 1 through 5 at an interest rate of 18% per year, compounded monthly.
What will be an ideal response?
PP = year; CP = month; need effective annual i
i a = (1 + 0.18/12) 12 - 1
= 19.562% per year
First find F in year 5 and then convert to A over 5 years. By factor,
F 5 = 350,000(F/A,19.562%,3)
= 350,000(3.6251)
= $1,268,785
A = F 5 (A/F,19.562%,5)
= 1,268,785(0.13554)
= $171,971
By spreadsheet, function = -PMT(19.562%,5,,FV(19.562%,3,350000)) displays
A = $171,975 per year
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