The Formula for the Present Value of an Annuity

Oct 13, 2025 by thesweetdesigns.com 116 views

Introduction

In this article, we will delve into the world of finance and explore the concept of accumulated value. Specifically, we will calculate the accumulated value of 461 payments made at the end of each quarter for 13 years, with an interest rate of 7.3% compounded quarterly. This problem is a classic example of a financial calculation that requires the use of the formula for the present value of an annuity.

Understanding the Problem

To begin, let's break down the problem and understand what is being asked. We have a series of 461 payments, each made at the end of a quarter, over a period of 13 years. The interest rate is 7.3% per annum, compounded quarterly. This means that the interest is applied and compounded every quarter, rather than annually.

The Formula for the Present Value of an Annuity

The formula for the present value of an annuity is given by:

PV = PMT x [(1 - (1 + r)^(-n)) / r]

Where:

PV = present value
PMT = periodic payment
r = interest rate per period
n = number of periods

In this case, we are given the following values:

PMT = $461 (the payment made at the end of each quarter)
r = 7.3%/4 = 1.825% (the interest rate per quarter)
n = 13 years x 4 quarters/year = 52 quarters

Calculating the Accumulated Value

Now that we have the formula and the values, we can plug them into the formula to calculate the accumulated value. However, we need to use the formula for the future value of an annuity, which is given by:

FV = PMT x [(1 + r)^n - 1] / r

Where:

FV = future value
PMT = periodic payment
r = interest rate per period
n = number of periods

In this case, we are given the following values:

PMT = $461 (the payment made at the end of each quarter)
r = 7.3%/4 = 1.825% (the interest rate per quarter)
n = 13 years x 4 quarters/year = 52 quarters

Using a Financial Calculator or Spreadsheet

To calculate the accumulated value, we can use a financial calculator or a spreadsheet. Let's use a spreadsheet to calculate the accumulated value.

	A	B	C
1
2	461	0.01825	52
3
4	=461*[(1+0.01825)^52-1]/0.01825

The formula in cell E4 is:

=461*[(1+0.01825)^52-1]/0.01825

This formula calculates the accumulated value of the 461 payments made at the end of each quarter for 13 years, with an interest rate of 7.3% compounded quarterly.

The Final Answer

The final answer is:

Q&A: Accumulated Value of Quarterly Payments

In this article, we will provide answers to some of the most frequently asked questions related to the accumulated value of quarterly payments.

Q: What is the formula for the accumulated value of quarterly payments?

A: The formula for the accumulated value of quarterly payments is given by:

FV = PMT x [(1 + r)^n - 1] / r

Where:

FV = future value
PMT = periodic payment
r = interest rate per period
n = number of periods

Q: How do I calculate the accumulated value of quarterly payments?

A: To calculate the accumulated value of quarterly payments, you can use a financial calculator or a spreadsheet. The formula for the accumulated value of quarterly payments is given above.

Q: What is the interest rate per period?

A: The interest rate per period is the interest rate per quarter, which is 7.3%/4 = 1.825%.

Q: How many periods are there in 13 years?

A: There are 13 years x 4 quarters/year = 52 quarters in 13 years.

Q: What is the periodic payment?

A: The periodic payment is $461, which is the payment made at the end of each quarter.

Q: What is the accumulated value of quarterly payments?

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