Annuities and Future Value

Study Notes

Annuities

An annuity is a series of equal payments made at regular intervals over a specified period.
Annuities are commonly used in savings plans, retirement funds, loans, and mortgages.
Understanding the time value of money and how interest affects the accumulation or repayment of funds is crucial for managing annuities.

Types of Annuities

Future Value Annuity (FVA) accumulates a sum of money in the future by making regular deposits.
FVA is commonly used in savings accounts, retirement funds, and investment funds.
Compound interest is applied on the accumulating amount in FVA.
Present Value Annuity (PVA) pays off a loan or debt over time with regular payments.
PVA is commonly used in loan repayments and mortgage bonds.
Compound interest is applied to the reducing balance of the loan in PVA.

Future Value of an Annuity

The future value of an annuity formula calculates the total value of the investment after all payments have been made and compounded with interest over the investment period.
The formula for FV is: FV = P ((1 + i)^n - 1) / i.
FV represents the future value of the annuity.
P represents the payment amount per period.
i represents the interest rate per period.
n represents the number of periods.

Present Value of an Annuity

The present value of an annuity formula calculates the initial amount required to achieve a series of future payments or the current value of the series of payments needed to repay a loan.
The formula for PV is: PV = P (1 - (1 + i)^(-n)) / i.
PV represents the present value of the annuity.
P represents the payment amount per period.
i represents the interest rate per period.
n represents the number of periods.

Annuities

An annuity is a series of equal payments made at regular intervals over a specified period.
Annuities are commonly used in savings plans, retirement funds, loans, and mortgages.
Understanding the time value of money and how interest affects the accumulation or repayment of funds is crucial for managing annuities.

Types of Annuities

Future Value Annuity (FVA) accumulates a sum of money in the future by making regular deposits.
FVA is commonly used in savings accounts, retirement funds, and investment funds.
Compound interest is applied on the accumulating amount in FVA.
Present Value Annuity (PVA) pays off a loan or debt over time with regular payments.
PVA is commonly used in loan repayments and mortgage bonds.
Compound interest is applied to the reducing balance of the loan in PVA.

Future Value of an Annuity

The future value of an annuity formula calculates the total value of the investment after all payments have been made and compounded with interest over the investment period.
The formula for FV is: FV = P ((1 + i)^n - 1) / i.
FV represents the future value of the annuity.
P represents the payment amount per period.
i represents the interest rate per period.
n represents the number of periods.

Present Value of an Annuity

The present value of an annuity formula calculates the initial amount required to achieve a series of future payments or the current value of the series of payments needed to repay a loan.
The formula for PV is: PV = P (1 - (1 + i)^(-n)) / i.
PV represents the present value of the annuity.
P represents the payment amount per period.
i represents the interest rate per period.
n represents the number of periods.

Description

Learn about annuities, including types and their uses, and understand how to manage them with knowledge of the time value of money and interest. Explore savings plans, retirement funds, loans, and mortgages.