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Math Help - Graduated annuity

  1. #1
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    Graduated annuity

    This is from an Excel class in Financial Technology. Maybe someone can enlighten me on what the professor did.


    The professor had the following cells on an Excel worksheet


    Your age today
    Age you'd like to retire
    Years Invested
    Balance of funds today
    Annual Contributions
    Expected rate of Inflation
    Growth Rate of Cash Flows
    Rate of Return on Investments


    With the goal of finding the future value, given the above variables


    So let's assign some numbers to these variables


    Your age today =25
    Age you'd like to retire =55
    Years Invested 55-25=30
    Balance of funds today=0
    Annual Contributions=7500
    Expected rate of Inflation =4%
    Growth Rate of Cash Flows =3.5%
    Rate of Return on Investments= 8%


    Using the Excel sheet, the professor got a future value of $1,306,055.37. If Excel formula is a big mess of functions and named cells that I haven't bothered to decipher yet, so I wanted to see if I could get the same result as he did by hand.


    I thought the answer was


    growth =0.035-0.04=-0.005


    \frac{7500}{1.08}+\frac{0.995(7500}{1.08^{2}}+...+  \frac{0.995^{29}(7500)}{1.08^{30}}


    To get the present value and then multiply by 1.08^{30} to get the future value.


    Which would give


    \frac{7500}{1.08}*\frac{1-(\frac{0.98}{1.08})^{30}}{1-\frac{0.98}{1.08}}*1.08^{30}=713787.94


    That's much lower than what the professor got.


    Anyway, I attached the Excel sheet. Maybe someone can decipher it for me. This isn't going to be on any exams or anything, so I doubt the professor will spend the time to go over it
    Attached Files Attached Files
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  2. #2
    MHF Contributor
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    Re: Graduated annuity

    Hey downthesun01.

    Those formulas have two forward value statements, not one: did you include both forward value calculations in your working out?
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  3. #3
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    Re: Graduated annuity

    Quote Originally Posted by chiro View Post
    Hey downthesun01.

    Those formulas have two forward value statements, not one: did you include both forward value calculations in your working out?
    i agree with him................

    NZT
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