Annuity Payments

LG: I can calculate the payment of an annuity in present value and future value situations

Recall: Present Value or Future Value?

• Future value – Money is being deposited (paid into) an account

at regular intervals to save for something later on

• Present value– Money is withdrawn from an account at regular

intervals– Principal borrowed for a loan is the present value

of the investment

FormulasFuture Value Present Value

Rearrange each formula to solve for the payment, R:

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).

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.

Homework

Pg. 430 # 4, 6 - 10