Lesson39

# Lesson39 - Lesson 39 Appendix I Section 5.6 (part 1) Any of...

This preview shows pages 1–2. Sign up to view the full content.

1 Lesson 39 Appendix I Section 5.6 (part 1) Any of you who are familiar with financial plans or retirement investments know about annuities. An annuity is a plan involving payments made at regular intervals. An ordinary annuity is one in which the payments are made at the end of each time interval. In this lesson, we will be discussing ordinary annuities. The future value of an annuity is the sum of all the payments and the interest those payments earn. Suppose a person makes a payment of \$500 every 3 months for 20 years. The amount of money in that account at the end of the 20 years is the future value of the annuity. Formula for the Future Value of an Annuity: The future value S of an ordinary annuity with deposits or payments of R made regularly k times per year for t years, with interest compounded k times per year at an annual rate r , is given by… (1 ) 1 , where kt i r S R i i k + - = = Note: The frequency of compounding per year always equals the types of payments. For example, if a person makes monthly payments, then the interest is compounded monthly. If a person makes payments every 6 monthly, then the interest is compounded semiannually. Ex 1: Assume that \$1200 is deposited at the end of each year into an account in which interest is compounded annually at a rate of 5%. Find the accumulated amount (future value) after 6 years. Ex 2:

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 04/23/2011 for the course MA 152 taught by Professor Owendavis during the Spring '08 term at Purdue.

### Page1 / 6

Lesson39 - Lesson 39 Appendix I Section 5.6 (part 1) Any of...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online