Personal Finance 1st Edition by Jack R. Kapoor

Exercise 25

Saving for a Down Payment. In an attempt to have funds for a down payment, Jan Carlson plans to save $3,500 a year for the next five years. With an interest rate of 3 percent, what amount will Jan have available for a down payment after the five years?

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Annuity is a series or level of cash flows that occur at the end of each period for some fixed number of periods. It is also called as ordinary annuity.

For calculating the future value of a series of cash flow deposits of C dollars per period for t periods when the rate of return, or interest rate, is r is given by:

Where,

C is the annuity cash savings amount

t is the number of time periods

r is the rate of return (or) discount rate

The term in parentheses on the Numerator is sometimes called the future value interest factor for annuities and abbreviated FVIFA(r, t).