Solving Typical FE Problems
In the previous problem type, the procedure for converting a uniform series into an equivalent present amount was discussed. Here a uniform series is converted into a future amount instead of a present one. The equation for doing so is:
The standard notation form is F= A(F/A,i,n). It is important to remember that the F occurs in the same period as the last A. As before, the n is equal to the number of A values and the i used in the calculation must be expressed over the same time units as n.
Example #5: If a person deposits $100 per month into an account which pays interest at a rate of 6% per year compounded monthly, the amount in the account at the end of five years would be nearest to:
- $564
- $3,69
- $6,977
- $7,992
Solution: Since the cash flow (i.e., A values) occurs over monthly interest periods, the n and i must have monthly time units.
As in the previous problem type, the standard equation can be set up and solved in reverse to find an A value from a given future worth, F, using A = F(A/F,i,n).
Example #6: A small company wants to have enough money saved to purchase a new $200,000 warehouse in five years. If the company can invest money at 18% per year, the amount that must be invested each year is closest to:
- $27,960
- $36,920
- $49,650
- $63,960
Solution:
