A

pVIFAhn

The interest factor is found in Table A.5 to be 2.6730, and substituting this value into Equation A.7, the three annual withdrawals are calculated to be $2,806:

This particular calculation is used frequently to set up insurance and pension-plan benefit schedules and to find the periodic payments necessary to retire a loan within a specified period. For example, if you want to retire in three equal annual payments a $7,500 bank loan accruing interest at 6% on the unpaid balance, each payment would be $2,806. In this case, the bank is acquiring an annuity with a present value of $7,500.

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