Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 1 Chapter 11 Annuities, Stocks, and Bonds Section 1 Annuities and Retirement Accounts

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 2 Basic Terms with Annuities Annuity– series of equal payments made at regular intervals Ordinary annuity– payments are made at the end of each period Payment period– time between payments Term of the annuity– time needed for all payments to be made

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 3 Basic Terms with Annuities Amount, compound amount, or future value of the annuity– total amount in an annuity on a future date

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 4 Find the Amount of an Annuity Amount = Payment × Number from amount of an annuity table

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7 Example Micah Samson’s employer contributes up to 4% of his $34,000 salary into his retirement plan. Rodriguez decides to put 4% of his salary into the retirement plan. Using annual calculations, find the future value in 8 years (a)if the account earns 4% compounded annually and (b)if the account earns 3% compounded quarterly. (c)Then find the difference between the two future values.

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 8 An annuity in which payments are made at the beginning of each time period is called an annuity due. Find Amount of an Annuity Due

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 9 Find Amount of an Annuity Due Amount = Payment × Number from amount of an annuity table Step 1 Add 1 to the number of periods. Step 3 Subtract 1 payment. Step 2

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 10 Example Jean set up an investment program using an annuity due with payments of $200 at the beginning of each month. Find (a) the amount of the annuity and (b) the interest if she makes payments for 10 years into an investment account expected to pay 4% compounded monthly.

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 11 Page 421 Exercise 16