More Examples: Calculating PMT, N, and i for Ordinary Annuities
The following examples will help you practice what you have learned. The Excel solutions are below.
Example 1
Grace would like to make contributions to her TFSA such that the account will accumulate $205,000 after 25 years.
- What end-of-quarter contributions must be made if the TFSA earns 6% compounded annually?
- What end-of-quarter contributions must be made if the TFSA earns 6% compounded semiannually?
- What end-of-quarter contributions must be made if the TFSA earns 6% compounded quarterly?
Try creating the spreadsheet solutions yourself.
Check your answer by reviewing the following spreadsheet: Calculating pmt for ordinary annuity – Grace example 1 – Template
Example 2
Grace is considering expanding the size of her store. The space directly next to hers just became vacant and went up for sale. Grace is now discussing the terms of a $50,000 loan with the bank’s lending officer. The interest rate on the loan is 7.5% compounded monthly.
- How many months will it take to repay the loan if the end-of-month payments are $350?
- How many months will it take to repay the loan if Grace pays an extra $100 per month?
Try creating the spreadsheet solutions yourself.
Check your answer by reviewing the following spreadsheet: Calculating NPER (N) for grace example 2 – Template
Example 3
Grace wants to contribute $500 at the end of each month to an RRSP. She hopes to accumulate $480,000 after 20 years. What annually-compounded rate of return will let Grace meet this goal?
Try creating the spreadsheet solutions yourself.
Check your answer by reviewing the following spreadsheet: Calculating periodic, nominal and effective rates i-grace example 3 – Template
