Principles of Managerial Finance, 15th Edition

5.6 Special Applications of Time Value

1. LG6

Future-value and present-value techniques have a number of important applications in finance. We’ll study four of them in this section: (1) determining deposits needed to accumulate a future sum, (2) loan amortization, (3) finding interest or growth rates, and (4) finding an unknown number of periods.

Determining Deposits Needed to Accumulate A Future Sum

Suppose that you want to buy a house 5 years from now, and you estimate that an initial down payment of $30,000 will be required at that time. To accumulate the $30,000, you will wish to make equal annual end-of-year deposits into an account paying annual interest of 6%. The solution to this problem is closely related to the process of finding the ...