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Unformatted text preview: 1 1 Lecture 4: Topic: Mathematics of Finance Reading for this lecture H&P, Ch 5, Sect 5.4. Homework for Tutorial in Week 3 Ex. 5.4, pp. 216217, problems 13, 17, 19, 23, 31. 2 An Annuity An annuity is a sequence of payments of the same size, R, made at fixed intervals of time over the term of the annuity, n. e.g. At retirement superannuation benefits may be received as an annuity. 3 Types of Annuity Ordinary Annuity Period 1 2 …. n1 n       R R R R R R R R R R Annuity Due Period 1 2 …. n1 n       R R R R R R R R R R Future Value, S Present Value, A 4 Present Value. An Ordinary Annuity R, is made at the END of each period. A = R(1+r)1 + R(1+r)2 + …. + R(1+r)n An Annuity Due R, is made at the BEGINNING of each period. A = R + R(1+r)1 + R(1+r)2 + …. + R(1+r)(n1) A = R(1+r)[1 – (1+r)n ] r A = R[1 – (1+r)n ] r Formula Formula 5 Future Value . An Ordinary Annuity R, is made at the END of each period. S = R + R(1+r) + R(1+r) 2 + …. + R(1+r) n1 An Annuity Due R, is made at the BEGINNING of each period....
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This note was uploaded on 06/16/2010 for the course ECON 220 taught by Professor Drea during the Spring '10 term at Uni. West.
 Spring '10
 drea

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