Mr Brommer made a commitment to give 15000 to his alma mater

Mr. Brommer made a commitment to give $15,000 to his alma mater, Shippensburg University. He will give the money in five equal installments of $3000 each year for 5 years. How much must he initially deposit into an account that will earn 7.5% annual interest in order for this annuity to be realized?

Solution

Initial value should be deposited today > $12,137.65

Using financial calculator BA II Plus - Input details:

#

I/Y = Yield = Rate = YTM =

7.50

FV = Future Value =

$0

N = Number of payments =

5

PMT = Payments or Coupon =

-$3,000.00

CPT > PV = Present Value or Initial Value =

$12,137.65