Fundamentals of Corporate Finance 3rd ed Jonathan Berk Ch4

50 Berk/DeMarzo/Harford ? Fundamentals of Corporate Finance, Third Edition, Global Edition

Our charges correspond to a 45-month annuity. Therefore, using the FV of an annuity formula, the future value at the end of 45 months is: FV(Annuity) = $1,000 ×

11.0145?1? = $56,481.07 ?0.01Or using the annuity calculator:

Of course, we are not quite done. When we receive our statement in the 46th month, there will

be one more month’s worth of interest charged. Therefore, we will have a final balance of $56,481.07 × 1.01 = $57,045.89. Note that the future value formula for an annuity computes the future value as of the date of the last payment. In this question, we need to compute the future value one month after the final payment, which requires an additional calculation. (We could have alternatively computed the PV of the annuity, and then computed its future value 46 months in the future.)

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