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Lecture Practical business math procedures (11/e) - Chapter 13: Annuities and sinking funds

The main contents of the chapter consist of the following: Annuities: ordinary annuity and annuity due (find future value), present value of an ordinary annuity (find present value), sinking funds (find periodic payments). | Chapter Thirteen Annuities and Sinking Funds Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 13- Differentiate between contingent annuities and annuities certain. Calculate the future value of an ordinary annuity and an annuity due manually and by table lookup. LU13-1: Annuities: Ordinary Annuity and Annuity Due (Find Future Value) Learning unit objectives LU 13-2: Present Value of an Ordinary Annuity (Find Present Value) Calculate the present value of an ordinary annuity by table lookup and manually check the calculation. Compare the calculation of the present value of one lump sum versus the present value of an ordinary annuity. LU 13-3: Sinking Funds (Find Periodic Payments) Calculate the payment made at the end of each period by table lookup. Check table lookup by using ordinary annuity table. 2 13- Compounding Interest (Future Value) Term of the annuity – The time from the beginning of the first payment period to the end of | Chapter Thirteen Annuities and Sinking Funds Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 13- Differentiate between contingent annuities and annuities certain. Calculate the future value of an ordinary annuity and an annuity due manually and by table lookup. LU13-1: Annuities: Ordinary Annuity and Annuity Due (Find Future Value) Learning unit objectives LU 13-2: Present Value of an Ordinary Annuity (Find Present Value) Calculate the present value of an ordinary annuity by table lookup and manually check the calculation. Compare the calculation of the present value of one lump sum versus the present value of an ordinary annuity. LU 13-3: Sinking Funds (Find Periodic Payments) Calculate the payment made at the end of each period by table lookup. Check table lookup by using ordinary annuity table. 2 13- Compounding Interest (Future Value) Term of the annuity – The time from the beginning of the first payment period to the end of the last payment period Future value of annuity – The future dollar amount of a series of payments plus interest Present value of an annuity – Tthe amount of money needed to invest today in order to receive a stream of payments for a given number of years in the future Annuity – A series of payments 3 End of period $1.00 $2.0800 $3.2464 Future value of an annuity of $1 at 8% (Figure 13.1) 4 Classification of Annuities Contingent annuities – have no fixed number of payments but depend on an uncertain event Annuities certain – have a specific stated number of payments Life Insurance payments Mortgage payments 5 Classification of Annuities Ordinary annuity – regular deposits/payments made at the end of the period Annuity due – regular deposits/payments made at the beginning of the period Jan. 31 Monthly Jan. 1 June 30 Quarterly April 1 Dec. 31 Semiannually July 1 Dec. 31 Annually Jan. 1 6 Step 1. For period 1, no interest calculation is necessary, since money is invested at the end of .