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Savings Annuities

Savings Annuities. Savings Annuities. An annuity is where you make a series of periodic payments into an account. The typical types of accounts are superannuation and loans. There are basically two types of annuities. Future Value Present Value. Future Value.

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Savings Annuities

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  1. Savings Annuities

  2. Savings Annuities • An annuity is where you make a series of periodic payments into an account. • The typical types of accounts are superannuation and loans. • There are basically two types of annuities. • Future Value • Present Value

  3. Future Value • This is when the lump sum of money will exist in the FUTURE. • You need to read the question and decide on when the lump sum will exist. • Then you need to write down the variables. • Which ever one you are missing – is the one you have to find.

  4. Finding FV

  5. N = I% = PV = Pmt = FV = P/Y = C/Y = 15 x 1 6 0 -600 ? 1 1 Solution : $13965.58 Finding FV

  6. Note that PMT is negative

  7. Future Value - n • You need to read the question to make sure that the LUMP SUM will exist in the FUTURE andthere are a series of deposits. • Write down the variables – check P/Y and C/Y • Enter the data in and solve for n – F1 • The answer you get will be in terms of the number of periods – i.e. number of months.

  8. There are a regular series of payments – so it has to be an annuity question. • The money will exist in the FUTURE – so it has to be a future value question. • We have the FV the PMT, the Rate (I%) – we haven’t got n.

  9. N = I% = PV = Pmt = FV = P/Y = C/Y = ? 6.15 0 -400 15000 12 12 Finding n Solution : 34.39

  10. 34.39 months

  11. Future Value – I% • You need to read the question to make sure that the LUMP SUM will exist in the FUTURE andthere are a series of deposits. • Write down the variables – check P/Y and C/Y • Enter the data in and solve for I% – F2 • The answer you get will be the rate required.

  12. There are a regular series of payments – so it has to be an annuity question. • The money will exist in the FUTURE – so it has to be a future value question. • We have the FV the PMT, the term – we haven’t got I%.

  13. N = I% = PV = Pmt = FV = P/Y = C/Y = 4 x 4 ? 0 -1500 28000 4 4 Finding i Solution : 8.08%

  14. 8.08%

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