In the previous examples, we never changed the Deposit type, currently

set at Regular. This is because we have not yet needed to change this. Recall

that the second example in the Future Value chapter needed the stepping function

in order to compute the answer. The stepping done was in a percentage amount.

We stepped the monthly amount you paid by 10%. The key word is percent. If we

wanted to step using a dollar amount, we would have to change the Deposit Type.

We will now look at a example that requires us to step using a dollar amount.

Therefore we must change the Deposit Type from the Regular setting to the

Amount Step setting.

 

The next example looks at the Amount type in an Annuity Example using the

Fixed Rate Present Value Form.

 

Annuity

 

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The Present value concept can also be applied to Annuities. An annuity is an investment

that produces a level stream of cash flows for a limited number of periods. Annuities come

in many forms. The next few examples look at how annuities can be analyzed using

WinAmort Professional.

 

One type of annuity is a Lease. Leases come in many forms, but in all cases the
lessee (user’s) promises to make a series of payments to the lessor (owner).
The lease contract specifies the monthly or semi-annual payments, with the first payment usually due as soon as

the contract is signed. This differs from a Mortgage or Loan, where the first

payment is usually due a month later.

 

The next example looks at a lease from the owner’s viewpoint.

 

 

Switch to the Fixed Rate Present Value Form if you have not already done so.

 

The monthly lease payment amount.

 

 

Use all the known information and your knowledge of the Fixed Rate Present Value Form

and fill in the fields. Then compute the answer.

 

Once you fill in all the fields, and set the drop down menus accordingly. Verify you form with the

one illustrated below.

 

 

This is the amount you can charge per month on the lease if you want to earn a return of 14%. This will produce $179,399.40

(60 payments of $2,929.99), in 5 years, which will cover your initial investment of $130,000 and give you a gain of $49,399.40 in interest.

 

 

 

The maximum amount that should be paid for the property.

 

 

What is the Present Value or the Beginning Amount for the stream of withdrawals,

taking the effects of interest in to account? In this investment you already know that you would

expect a return of $1400 a month for the next twenty five years, starting immediately.

At 16% interest, the present value of a stream of payments of $1,400 for twenty-five years can

be determined using the Fixed Rate Present Value Form.

 

 

Use all the known information and your knowledge of the Fixed Rate Present Value Form

and fill in the fields. Then compute the answer.

 

 

 

Fact: The answer obtained is not realistic since you would expect the rent to increase annually instead of being held constant.

The example we just did assumes a fixed rent amount for twenty-five years. Suppose the rent increases by 4.5% annually.

 

We can take this into account by using the Stepping feature.

 

What will the new beginning amount be, taking a rent increase of 4.5% per year into account?

 

By now you should be familiar with the STEPPING feature. Change the TYPE to Percent Step.

 

Use all the known information and your knowledge of the Fixed Rate Present Value Form

and fill in the fields. Then compute the answer.

 

 

Example on page 149