Annuity Payments LG: I can calculate the payment of an annuity in present value and future value situations.

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Presentation transcript:

Annuity Payments LG: I can calculate the payment of an annuity in present value and future value situations

Recall: Present Value or Future Value? Money is being deposited (paid into) an account at regular intervals to save for something later on Present value Money is withdrawn from an account at regular intervals Principal borrowed for a loan is the present value of the investment

Formulas Future Value Present Value 𝐴= 𝑅 1+𝑖 𝑛 −1 𝑖 𝑃𝑉= 𝑅 1 − 1+𝑖 −𝑛 𝑖 𝐴= 𝑅 1+𝑖 𝑛 −1 𝑖 𝑃𝑉= 𝑅 1 − 1+𝑖 −𝑛 𝑖 Rearrange each formula to solve for the payment, R:

Example 1 Brianne wants to save $6000 for a trip she plans to take in 5 years. What regular deposit should she make at the end of every 6 months into an account that earns 6% per year compounded semi-annually? a) Present value or future value? b) Calculate deposit (payment).

Example 2 Donald borrows $1200 from an electronics store to buy a computer. He will repay the loan in equal monthly payments over 3 years, starting 1 month from now. He is charged 12.5% per year compounded monthly. a) Present value of future value? b) Determine Donald’s monthly payment.

Homework Pg. 430 # 4, 6 - 10