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5.8 Annuities

Objective: SWBAT compute the future value of an ordinary annuity and an annuity due. 5.8 Annuities. Vocabulary and Formulas. Annuity – an equal amount deposited in an account regularly over time (ex. Retirement) ‏

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5.8 Annuities

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  1. Objective: SWBAT compute the future value of an ordinary annuity and an annuity due 5.8 Annuities

  2. Vocabulary and Formulas • Annuity – an equal amount deposited in an account regularly over time (ex. Retirement)‏ • Annuity Due – an annuity where the deposits are made at the beginning of an interest period • Ordinary Annuity – an annuity where deposits are made at the end of an interest period • Future Value = Deposit x Future Value of $1.00 • FV of Annuity Due = FV of Ordinary Annuity x ($1.00 + Rate per Period)‏

  3. Example • $1200 is deposited quarterly at 6% for 2 years. • What is the Future Value of Ordinary Annuity? • What is the Future Value of Annuity Due? • Solution • Step 1: Find the pay periods: 4 x 2 = 8 • Step 2: Find the Interest Rate Per Period • 6% / 4 = 1.5% • Step 3: Look on p. 798 for “Amount for $1.00” • 8.43284 • Step 4: Find the FV of Ordinary Annuity • 1200 x 8.43284 = $10,119.41

  4. Solution Cont'd • Find the Future Value of Annuity Due • FV of Annuity Due = FV of Ordinary Annuity x ($1.00 + Rate per Period)‏ • FV of Ordinary Annuity = $10,119.41 • Rate per Period = 1.5% • FV of AD = $10,119.41 x ($1.00 + .015)‏ • FV of AD = $10,119.41 x 1.015 • FV of AD = $10,271.20

  5. Assignment • p. 218-219 1-14all, 16-24 even

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