Chapter 3, Section 6 Annuities

I can… Calculate the future value of an ordinary annuity. Calculate the present value of an ordinary annuity.

What the heck is an annuity? A series of equal payments made at regular intervals of time. Examples: Rent, salaries, loan payments, and making regular deposits into a saving account. An annuity due is when payments are made at the beginning of each period. An ordinary annuity is when the payments are made at the end of each period.

What’s the future value of an annuity? The amount of money in an account after a series of equal payments are made to it, including interest the money has earned. So…the total amount of money in your account at the end! You can calculate this by looking at a table and finding the multiplier—just like we did with interest. Example 1, p. 116 Check your understanding A & B

What’s the present value of an annuity? The balance needed in an account in order to make a series of payments from the account. Even when money is being taken out of the account, you still earn interest on the money in the account. To find the present value of an annuity—use a table to find the multiplier. Example 2, p. 117 Check you understanding C & D

Time to practice! P. 118, P. 119, 16-18, 21-22, 25-27