Chapter Outline

This chapter delves into the topic of annuities, structured into two main parts. The first part addresses using a financial calculator for annuity calculations, while the second part delves into algebraic formulas for these calculations.

3.1 Introduction to Annuities: This initial section lays the groundwork by defining annuities, explaining essential terms, and categorizing different types of annuities.

Calculator Approach

Sections in the calculator approach are typically divided into subsections, focusing on an ordinary annuity or an annuity due.

3.2 Future Value (FV) of Annuities – Calculator Approach: This section teaches how to calculate the future value of annuities with a financial calculator.

3.3 Present Value (PV) of Annuities – Calculator Approach: Here, the focus is on determining the present value of annuities using a financial calculator.

3.4 Payment (PMT) of Annuities – Calculator Approach: This part covers the calculation of annuity payments with a financial calculator.

3.5 Number of Payments and Duration – Calculator Approach: This section demonstrates how to find out the number of payments and the term length for annuities with a financial calculator.

3.6 Nominal Interest Rate – Calculator Approach: This section explores calculating nominal and periodic interest rates for annuities with a financial calculator.

Formula Approach

Each section in the Formula Approach is organized into subsections based on four annuity types: ordinary simple annuity, ordinary general annuity, simple annuity due, and general annuity due.

3.7 Future Value (FV) of Annuities – Formula Approach: This section focuses on the future value of annuities calculation using algebraic formulas.

3.8 Present Value (PV) of Annuities – Formula Approach: This section discusses the present value of annuities calculation with algebraic formulas.

3.9 Payment (PMT) of Annuities – Formula Approach: This section covers how to compute annuity payments using algebraic formulas.

3.10 Number of Payments and Duration – Formula Approach: This section shows how to calculate the number of payments and the duration of annuities using algebraic formulas.

3.11 Nominal Interest Rate – Formula Approach: Calculating the periodic interest rate (i) algebraically using formulas is challenging because it is difficult to isolate the interest rate variable in either the present value or future value formulas. As a result, we focus on using a financial calculator to determine the nominal interest rate (I/Y). For instructions on the calculator approach, please refer to Section 3.6.

3.12 Terminology and Glossary of Symbols: A section dedicated to defining terms and symbols used throughout the chapter, aiding in understanding and reference.

3.13 Appendix: Offers proofs for some of the formulas discussed in the chapter.