Chapter 5: Annuities

An annuity is a series of payments, with one payment per period for a given number of periods.

The variables in an annuity are:

• N: the number of periods, in the term (equal to the number of payments)
• I/Y: the nominal interest rate
• PMT: the periodic payment
• PV: the present value of the annuity
• FV: the future value of the annuity

Annuities can be used for:

• amortizing a loan, where the loan value is the present value of the annuity. The variables are N, I/Y, PMT and PV.
• accumulating an amount, where the amount is the future value of the annuity. The variables are N, I/Y, PMT and FV.

Annuities can be solved in many ways:

• by formula
• by calculating interest period by period
• by focal date methods
• by calculator program, which is what we will concentrate on.