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Chapter 7
Annuities
Copyright 2010 McGraw-Hill Australia Pty Ltd
PowerPoint slides to accompany Croucher, Introductory Mathematics and Statistics, 5e 7-1
Learning Objectives
• Understand and apply annuities
Definitions
1. The rent period (or payment period) is the interval of time
between the payments of an annuity
S R
1 i 1
n
i
Where:
S = future value of the annuity
R = amount of the annuity payment made per period
i = interest rate per payment period
n = total number of payments
S Rs n i
Where
sn i
1 i
n
1
i
s 40 0.02
1 0.02 1
40
0.02
60.40198318
S R sn i
$250 60.40198318
$15100.50
A R
1 1 i n
Where:
A = present value
R = annuity payment per period
i = interest rate per period
n = number of payments
A R an i
• Where
1 1 i
n
an i
i
• The value of a n i (or an at i %) may be thought of as the present
value at an interest rate of i % per period of $1 paid at the end
of each period for n periods
Solution 0.09
R $120, i 0.00785, n 12 5 60
12
From Table 3:
a60 0.0075 48.17337352
A R an i
$120 48.17337352
$5780.80
Hence, the family must repay the loan at the rate of $1324.47 per quarter.
Note that the family will, in fact, be paying back to the bank a total of
$1324.47 × 80 = $105 957.60, considerably more than the original $40 000
loan!
s8 0.025
1 0.025 1
8
0.025
8.73611590
$6000
So R
8.76311590
$686.80