HP 40gs HP 39gs_40gs_Mastering The Graphing Calculator_English_E_F2224-90010.p - Page 157
Annuities, Loan calculations, a loan. The current interest rate is 6.5
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Annuities An engineer retires with $650,000 available for investment. She invests the money in a portfolio which is expected to have an average return of 5% per annum. She wants to have the account pay a monthly income to her and asks the accountant to assume that the income must last for 20 years. What income can be withdrawn? The PV for this problem is negative because, from the point of view of the engineer, the money flow is outward from her to the investment portfolio. The value of the regular payment, which has been solved for on the right, is positive as it is being paid from the portfolio to her. We also assume that the future value FV is to be zero since the income is only to last for 20 years. The value of N is 240, representing 20 years of monthly payments. On this basis the monthly annuity can be $4289.71 Loan calculations You wish to purchase a car by taking out a loan. The current interest rate is 6.5% and you can afford to make monthly payments of $300. You want to take out the loan over a period of 6 years and to still owe $10,000 at the end of that period (you expect an investment to mature at that time to pay the final amount). How much can you borrow? In this case, from your point of view, the payments and the FV final residual are outgoing (negative) since they are made to the bank. The present value (the loan) is positive. N is set to 6 years of monthly payments. Press to find the PV and this is the amount that can be borrowed. It will be positive since it is going from the bank to you. In this case it is clear that you can afford to borrow $24,624.29. 157