Annuity:
An annuity is a series of payments at equal time intervals FV = Future Value FV ( Ordinary): the amount is invested at the end of each month. FV (Annuity due): the amount is invested at the beginning of each month – receive more interest. Annuity
Ordinary Annuities and Annuities Due:
You have just won the lottery! You will receive $1 million in ten installments of $100,000 each. You think you can invest the $1 million at an 8 percent interest rate. What is the present value of the $1 million if the first $100,000 payment occurs one year from today? What is the present value if the first payment occurs today? Ordinary Annuities and Annuities Due
PowerPoint Presentation:
It is estimated that you will need R 600 000 for your child’s education in 10 years time, How much must you put away each year if you receive 10% interest pa.
FV (ordinary annuity ) = :
FV (ordinary annuity ) = FV = 600 000 I = 10/100 = 0.1 n = 10 yrs = R 37 647.48
PowerPoint Presentation:
How much would you need to invest each month to receive the same amount? =R 2 929.04 R2929.04 X 12 = R35148.53 12
FV ( annuity due) = FV (ordinary annuity) x :
FV ( annuity due) = FV (ordinary annuity) x X If we worked out the same problem using annuity due formula…. Save using annuity due
FV ( annuity due) :
FV ( annuity due) X X 600 000 = R 34 224.76