MBF3C and MAP4C
Day 3: Lesson 1 – AnnuitiesIn the past few days, we have been dealing with ‘compound interest’, where you either __________________ or _______________ a lump sum of money. However, sometimes it is not realistic to pay off a loan in one shot, or make one big time investment. Usually, you pay off a loan or invest money on a ___________________ basis. In other words, you make periodic ____________________________. This is what we call an _____________________. Specifically, an annuity is a series of _____________________ payments or deposits paid at _______________ intervals over a _________________ period of time. Some common examples of annuities include mortgages, car payments and insurance investments. There are two types of annuities, _________________ annuity and annuity ____________. With an ordinary annuity, payments are made at the end of the cycle and with an annuity due, the payments are made at the beginning. In order to solve annuity problems, we are going to be using the TVM solver. There are a few slight changes to what the letters represent, so read below!N = number of PAYMENTS total (number of years x frequency of payments)I% = Annual interest rate (same as before)PV = Present value of investment or loan (sometimes 0 if there is no money in an account)PMT = Amount of each payment FV = Future value of loan or investmentP/Y = Payments per yearC/Y = Compounds per yearPMT: END if ordinary annuity and BEGIN if annuity dueExample 1: Future Value of an AnnuityEmma recently started a part time job. She is saving for a car, which she will need when she attends college next year. She plans to deposit $400 at the end of each month into an account that pays 3.6% per year, compounded monthly. How much will Emma have saved at the end of six months?Step 1: Before using the calculator, make a list of your values:N = I% = PV =PMT =FV =P/Y = C/Y =PMT:Step 2: Enter the information into the TVM solver and solve for the desired value. Step 3: Give your answer in a complete sentence!Emma will have $________________saved after 6 months.Example 2: The Payment for an AnnuitySealy recently graduated from college and owes $16 000 on a student loan that he must begin to repay. Payments are to be made at the end of each month for the next 2.5 years. Interest is calculated at 9% per year, compounded monthly. a) Determine the amount of each payment.Step 1: Before using the calculator, make a list of your values:N = I% = PV =PMT =FV =P/Y = C/Y =PMT:Step 2: Enter the information into the TVM solver and solve for the desired value. Step 3: Give your answer in a complete sentence!Sealy must make monthly payments of $_____________________.b) Calculate the total amount needed to repay the loan.c) Calculate the total amount of interest paid on the loan.Example 3: The Present Value of an AnnuityD.J. has just purchased her first car. Her bank has given her a car loan with payments of $229.19 per month for the first year of the loan at 10.5% per year, compound monthly. a) What is the actual cost of the car if D.J. were to pay for it in cash today?Step 1: Before using the calculator, make a list of your values:N = I% = PV =PMT =FV =P/Y = C/Y =PMT:Step 2: Enter the information into the TVM solver and solve for the desired value. Step 3: Give your answer in a complete sentence!If D.J. paid it off today, it would cost her $ _____________________.b) How much interest will she pay by choosing the payment plan? ................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.