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226,566.42

Notice that we put a negative sign on the payment (why?). With a spreadsheet, use the function = FV(rate,nper,pmt,pv); be sure to put in a zero for pv and to enter -2,000 as the payment.

Here we have the cash flows ($100 per month), the future value ($76,374), and the time period (25 years, or 300 months). We need to find the implicit rate, r:

$76,374 = $100 X [(Future value factor - 1)/r] 763.74 = [(1 + r)300 - 1]/r

Because this is the worst period, let's try 1 percent:

Annuity future value factor = (1.01300 - 1)/.01 = 1,878.85

We see that 1 percent is too high. From here, it's trial and error. See if you agree that r is about .55 percent per month. As you will see later in the chapter, this works out to be about 6.8 percent per year.

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