Question

An annuity pays $500 per year for 12 years beginning one year from today. What is the remaining value of the annuity immediately before the sixth $500 payment? Assume an interest rate of 2% APR.

How would you do this with a financial calculator or excel? Thank you!

Answer 1

Year	PV factor 2% [1/(1+r)^]n
1	0.980
2	0.961
3	0.942
4	0.924
5	0.906
6	0.888
7	0.871
8	0.853
9	0.837
10	0.820
11	0.804
12	0.788
	10.575

Annual payment	500	$
No of years	12
Interest rate	12%
Total PV factor at 2%	10.575
Annual payment=	Loan amount/ total pv factor
Loan amount	Annual payment * total PV factor
Loan amount	5,287.50	$

year	Loan	Interest 2%	Annual payment	Closing loan
1	5,287.50	105.75	500.00	4,893.25
2	4,893.25	97.87	500.00	4,491.12
3	4,491.12	89.82	500.00	4,080.94
4	4,080.94	81.62	500.00	3,662.56
5	3,662.56	73.25	500.00	3,235.81
6	3,235.81	64.72	500.00	2,800.52
7	2,800.52	56.01	500.00	2,356.53
8	2,356.53	47.13	500.00	1,903.66
9	1,903.66	38.07	500.00	1,441.74
10	1,441.74	28.83	500.00	970.57
11	970.57	19.41	500.00	489.98
12	489.98	9.80	500.00	0.00

So remaining loan before 6th payment of annuity is 3235.81$