Annuity investments demand regular equal deposits into an investment

Simple Regular annuity Deposits are on the same timeline as the interest calculations (simple annuity) First deposit is made at the end of the conversion period (ordinary or regular annuity) Recall a conversion period is the schedule of the time interval for interest calculations.

$600 is invested every 6 months, starting 6 months from now into an account paying 2.5%/a compounded semi-annually for three years. What total amount of interest is earned? To solve this problem we Draw a timeline; Calculate the total amount: TVM solver Calculate the interest earned

Timeline: to interpret the given Deposit > > > > > > > > > > Earnings This $600 was just deposited, no time yet to earn interest on it.

$600 is invested every 6 months, starting 6 months from now into an account paying 2.5%/a compounded semi- annually for three years. Ti83+: apps, 1:Finance, 1:TVM solver N= the number of conversion periods, (2 per year)(3 years)N = 6 I = yearly interest rate, I = 2.5 PV = 0, because this is an annuity and you have no money at the very start. PV = 0 PMT= -600, negative because you hand over $600 every 6 months PMT = FV=0 at first, FV= 0, then FV = $ then use alpha enter to solve P/Y = 2, you make 2 payments per year (semi-annually) P/Y =2 C/Y=2, two interest calculations per year (semi-annually) C/Y = 2 PMT: END is highlighted for ordinary or regular annuity PMT:END

What was the total interest earned? Interest dollars = total amount of annuity – total amount deposited Interest dollars = $ = 6($600) $114.39