An annuity is a series of payments made at equal intervals. Examples of annuities are regular deposits to a savings account, monthly home mortgage payments, monthly insurance payments and pension payments. An annuity which provides for payments for the remainder of a person’s lifetime is a life annuity.

How annuities are calculated?

The payments are calculated so that their present value equals the lump sum of cash used to purchase the annuity. If you purchase a 20-year term certain annuity with a lump sum of $100,000, for example, the insurance company can pay you $493.48 per month at an assumed discount factor of 1.75 percent.

How to find the present value of a due annuity?

Find the present value of due annuity with periodic payments of $2,000, for a period of 10 years at an interest rate of 6%, discounted semiannually by factor formula and table? You have won the lottery! The lottery officials offer you two choices for collecting your winnings.

How long does it take to pay an annuity?

Find the current value of an annuity due of $900 each week for 11.2 years at 8% interest compounded weekly. A $75,000 mortgage is obtained at 9%. It should be paid in 20 years. Find the payment at the start of each month.

How are annuities a regular series of payments?

September 1, 2016 in Quantitative Methods. An annuity is a regular series of payments. An individual submits funds to a financial institution and in turn receives a regular series of payments. They are a direct result of the time value of money. Most annuities will require the individual to submit funds at the beginning of the agreement.

How to calculate the rate of interest on an annuity?

In lieu of a lump sum investment, assume that five annual payments of $32,000 are made at the end of each year. W… What is the rebate (Rb) on a loan of $2,000 at 5% annual interest if the borrower decides to pay it all after 10 payments of the 24-payment maturity time?