Lecture 25 Annuities Ana Nora Evans 403 Kerchof Math 1140 Financial Mathematics

Math Financial Mathematics I think my grade on the quiz will be A)A B)B C)C D)D E)F 2

Math Financial Mathematics Deferred Annuity A deferred annuity is an annuity whose first payment is made two or more rent periods after the beginning of the term. 3

Math Financial Mathematics Present Value The present value a deferred annuity is located m periods before the present value of an ordinary annuity. To determine the present value of such a deferred annuity we need to move back m rent periods the present value of an ordinary annuity. 4

Math Financial Mathematics Present Value 5

Math Financial Mathematics On her eighteen birthday, Latisha receives an annuity that is to pay $5,000 on her 25 th birthday through her 39 th birthday. Calculate the value of the annuity on her 18 th birthday using an annual effective interest rate of 5%. 6

Math Financial Mathematics On her eighteen birthday, Latisha receives an annuity that is to pay $5,000 on her 25 th birthday through her 39 th birthday. Calculate the value of the annuity on her 18 th birthday using an annual effective interest rate of 5%. The correct answer is B. A) B) C) D) 7

Math Financial Mathematics What about the maturity value of a deferred annuity? Do we need a new formula for that? 8

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Forborne Annuity A forborne annuity is an annuity whose last payment is made two or more rent periods before the end of the term. The maturity value is calculated p periods after the last payment. 10

Math Financial Mathematics Future Value of a Forborne Annuity The future value of a forborne annuity calculated p rent periods after the last payment is the future value of an ordinary annuity moved p rent periods forward. 11

Math Financial Mathematics Future Value of a Forborne Annuity 12

Math Financial Mathematics On her eighteen birthday, Latisha receives an annuity that is to pay $5,000 on her 25 th birthday through her 39 th birthday. Calculate the value of the annuity on her 50 th birthday using an annual effective interest rate of 5%. 13

Math Financial Mathematics On her eighteen birthday, Latisha receives an annuity that is to pay $5,000 on her 25 th birthday through her 39 th birthday. Calculate the value of the annuity on her 50 th birthday using an annual effective interest rate of 5%. A) B) C) D) 14

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Math Financial Mathematics On her eighteen birthday, Latisha receives an annuity that is to pay $5,000 on her 25 th birthday through her 39 th birthday. Calculate the value of the annuity on her 30 th birthday using an annual effective interest rate of 5%. The present value of the payments from the 31 st birthday trough the 39 th birthday on the 30 th birthday is The future value of the payments from the 25 th birthday trough the 30 th birthday on the 30 th birthday is 16

Math Financial Mathematics Monday Read sections 5.5, 5.6 Exam 2 Wed, 2 Nov 2011, 7-9pm Make-up Thu, 3 Nov 2011, 7-9am Charge 17