Lesson39

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

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

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