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annuities
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ANNUITIES
An ANNUITY is a series of equal
payments made at equal intervals of
time. Periodic payments of an
ORDINARY ANNUITY are made at the end
of each period.
The AMOUNT of an annuity is the sum
of the compound amounts of all of the
payments accumulated to the end of the
term.
Consider a simple case. Suppose you
deposit $100 at the end of each month
for five months. The bank pays 12%
interest compounded monthly. The
first payment will be in the bank for
four months, thus the compound amount
on that $100 at the end of the fifth
month will be
4
100(1.01) .
Similarly with the other payments.
PAYMENT NO. of MONTHS AMOUNT at END
4
1 4 100(1.01) =104.06
3
2 3 100(1.01) =103.03
2
3 2 100(1.01) =102.01
1
4 1 100(1.01) =101.00
5 0 100 =100.00
--------
TOTAL OF ALL AMOUNTS =510.10
This is exactly how a loan is paid
off. At the end of each month one
makes a payment on a loan.
To find the amount of an annuity of
a series of payments of amount R,
interest rate i per period, for n
periods, the formula is
n-1 n-2
S=R(1+1) +R(1+i) +...+R(1+1)+R
which can be simplified to
n
R((1+i) - 1)
S = -----------
i
On your C-64 that would be
S = R*((1+i)^n-1)/i.
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