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Annuities pp. 217-219 5-8 SECTION

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Click to edit Master text styles Second level Third level Fourth level Fifth level 2 SECTION Copyright © Glencoe/McGraw-Hill 5-8 Section Objective Compute: the future value of an ordinary annuity the future value of an annuity due

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Click to edit Master text styles Second level Third level Fourth level Fifth level 3 SECTION Copyright © Glencoe/McGraw-Hill 5-8 annuity (p.217) An equal amount of money deposited into an account at equal periods of time. ordinary annuity (p. 217) An account in which equal deposits are made at the end of each interest period and start earning interest at the beginning of the next period. Key Words to Know

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Click to edit Master text styles Second level Third level Fourth level Fifth level 4 SECTION Copyright © Glencoe/McGraw-Hill 5-8 annuity due (p. 217) An account in which regular deposits are made at the beginning of each interest period and start earning interest immediately. Key Words to Know

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Click to edit Master text styles Second level Third level Fourth level Fifth level 5 SECTION Copyright © Glencoe/McGraw-Hill 5-8 Future Value = Amount of Deposit × Future Value of $1.00 Formula 1

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Click to edit Master text styles Second level Third level Fourth level Fifth level 6 SECTION Copyright © Glencoe/McGraw-Hill 5-8 Future Value =Future Value of × ($1.00 + Rate of an Annuity DueOrdinary Annuity per Period) Formula 2

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Click to edit Master text styles Second level Third level Fourth level Fifth level 7 SECTION Copyright © Glencoe/McGraw-Hill 5-8 Understanding the Williams Sisters p. 217 How often can you add deposits to your annuity account?

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Click to edit Master text styles Second level Third level Fourth level Fifth level 8 SECTION Copyright © Glencoe/McGraw-Hill 5-8 Aiko Murakami deposits $500 in an ordinary annuity at the end of each quarter in an account earning 6 percent interest compounded quarterly. What is the future value of the account in 2 years? Example 1

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Click to edit Master text styles Second level Third level Fourth level Fifth level 9 SECTION Copyright © Glencoe/McGraw-Hill 5-8 Find the total number of periods. Periods per Year × Number of Years 4 × 2 = 8 Example 1 Answer: Step 1

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Click to edit Master text styles Second level Third level Fourth level Fifth level 10 SECTION Copyright © Glencoe/McGraw-Hill 5-8 Find the interest rate per period. Annual Rate ÷ Number of Periods per Year 6% ÷ 4 = 1.5% Example 1 Answer: Step 2

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Click to edit Master text styles Second level Third level Fourth level Fifth level 11 SECTION Copyright © Glencoe/McGraw-Hill 5-8 Find the future value of $1.00 for 8 periods at 1.5 percent per period using the Future Value of an Ordinary Annuity table on page 798 of your textbook. It is 8.43284. Example 1 Answer: Step 3

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Click to edit Master text styles Second level Third level Fourth level Fifth level 12 SECTION Copyright © Glencoe/McGraw-Hill 5-8 Find the future value. Amount of Deposit × Future Value of $1.00 $500 × 8.43284 = $4,216.42 Example 1 Answer: Step 4

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Click to edit Master text styles Second level Third level Fourth level Fifth level 13 SECTION Copyright © Glencoe/McGraw-Hill 5-8 Suppose Aiko Murakami (from Example 1) had made $500 deposits in an annuity due at the beginning of each quarter in an account earning 6 percent interest compounded quarterly. What is the future value of the account in 2 years? Example 2

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Click to edit Master text styles Second level Third level Fourth level Fifth level 14 SECTION Copyright © Glencoe/McGraw-Hill 5-8 You know from Example 1 that the future value of the ordinary annuity is $4,216.42. Example 2 Answer: Step 1

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Click to edit Master text styles Second level Third level Fourth level Fifth level 15 SECTION Copyright © Glencoe/McGraw-Hill 5-8 You also know that the rate per period is 1.5 percent or 0.015. Example 2 Answer: Step 2

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Click to edit Master text styles Second level Third level Fourth level Fifth level 16 SECTION Copyright © Glencoe/McGraw-Hill 5-8 Use the calculation for future value of an ordinary annuity due. Future Value of an Ordinary Annuity × ($1.00 + Rate per Period) $4,216.42 × ($1.00 + 0.015) = $4,216.42 × 1.015 = $4,279.67 Example 2 Answer: Step 3

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Click to edit Master text styles Second level Third level Fourth level Fifth level 17 SECTION Copyright © Glencoe/McGraw-Hill 5-8. Refer to the Future Value of an Ordinary Annuity for $1.00 per Period on page 798. Meredith Young deposits $1,500 in an ordinary annuity after each year for 8 years. The account pays 7 percent interest compounded annually. What is the future value of the account in 8 years? Practice 1

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Click to edit Master text styles Second level Third level Fourth level Fifth level 18 SECTION Copyright © Glencoe/McGraw-Hill 5-8 $15,389.70 Practice 1 Answer

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Click to edit Master text styles Second level Third level Fourth level Fifth level 19 SECTION Copyright © Glencoe/McGraw-Hill 5-8 You deposit $1,000 in an account each year at the beginning of the year. The account pays 8 percent interest compounded annually. What is the value of the account in 20 years? If you deposit $1,000 at the beginning of each year for 15 more years, what is the value of the account at the end of 35 years? Practice 2

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Click to edit Master text styles Second level Third level Fourth level Fifth level 20 SECTION Copyright © Glencoe/McGraw-Hill 5-8 Value of the account in 20 years: $49,422.92 Value of the account at the end of 35 years: $186,102.14 Practice 2 Answer

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Overtime Pay 5-8 END OF SECTION

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