- Annuities - series of fixed payments required from you (e.g. rent or car payments) or paid to you (e.g. bond coupons) over a period of time (yearlu, semi-annually, quarterly and monthly).
- Two types or Annuities - Ordinary Annuity (end of each period) & Annuity Due (beginning of each period)
- Future Value of Ordinary Annuity
- FV = CF * [ ( (1 + i) ^n - 1)/i]
- E.g. 1000 * ((1+0.05)^5-1)/0.05 = 5525.63
- Present Value of Ordinary Annuity
-
- PV = CF * (1 - (1+i)^-n)/i
- E.g. 1000 * (1-(1+0.05)^-5)/0.05 = 4329.48
- Future Value of Annuity Due
- FV = CF * [ ( (1 + i) ^n - 1)/i] * (1+i)
- E.g. 1000 * ((1+0.05)^5-1)/0.05 * (1+0.05) = 5801.92
- Present Value if Annuity Due
- PV = CF * (1 - (1+i)^-n)/i * (1+i)
- E.g. 1000 * (1-(1+0.05)^-5)/0.05 * (1+0.05) = 4545.95
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