Presentation on theme: "Annuity Payments LG: I can calculate the payment of an annuity in present value and future value situations."— Presentation transcript:
1 Annuity PaymentsLG: I can calculate the payment of an annuity in present value and future value situations
2 Recall: Present Value or Future Value? Money is being deposited (paid into) an account at regular intervals to save for something later onPresent valueMoney is withdrawn from an account at regular intervalsPrincipal borrowed for a loan is the present value of the investment
3 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 𝑖Rearrange each formula to solve for the payment, R:
4 Example 1Brianne 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).
5 Example 2Donald 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.