Lesson 4: Annuities: Present Value The present value of an annuity is the value at the beginning of the term of the annuity. When using the annuity formula you are usually looking for: • the amount needed to deposit now so that a specified amount can be withdrawn at regular intervals for x amount of time. • amount of regular payment if borrowing money Ex. Your parents are setting up an account for you so that you will be able to withdraw $1000 at the end of each year for 5 years. If interest is 5% compounded annually, how much will your parents need to put into the account?
1000
1000 1000 1000 1000
Present Value
The sum of this geometric series is the present value of the annuity.
Another formula that can be used for the PV of the annuity is:
Jun 710:01 AM
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Unit 08, Lesson 4.notebook
July 20, 2016
Ex. Sue needs to borrow $7500 to purchase a used car. The car dealer arranges the finance at 2.9% compounded monthly for 3 years. What will Sue's monthly payment be? How much interest does she end up paying?
Jun 710:30 AM
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Unit 08, Lesson 4.notebook
July 20, 2016
Ex. Amanda won a lottery that offers $50 000 a year for 20 years or a lump sum payment now. If she can invest the money at 5% compounded annually, how much should the lump sum payment be to be worth the same amount as the annuity?
Unit 08, Lesson 4.notebook. 1. July 20, 2016. Jun 710:01 AM. Lesson 4: Annuities: Present Value. The present value of an annuity is the value at the beginning of the term of the annuity. When using the annuity formula you are usually looking for: ⢠the amount needed to deposit now so that a specified amount can be ...
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First⦠what do these things mean? Think of two things: the definition and why it might be important in analyzing and evaluating a nonfiction piece of writing.
