CHAPTER 3- COMPOUND INTEREST

Annuity- sequence of periodic payments made at equal intervals of time and often, in equal amounts.

Present Value of Annuity (A)- the value at the beginning of the term. It is the sum of all periodic
payments discounted at present time.

Amount of Annuity (S)- the value of the annuity at the end of the term. It is the sum of all periodic
payments made at the end of each term plus all accumulated compound interest.

Cash price= Down payment + present value of annuity

Remaining liability- sum of the present values of all unpaid periodic payments.

Annuity Due ()- type of annuity where a sequence of periodic payments is made at the start of each
period.
- Present value
- R starts at now

Amount of Annuity Due (S )- the value of the annuity due at the end of the term. Just like ordinary
annuity, it is also the sum of all future payments accumulated to the end of the term.
- Amount of annuity due

Deferred Annuity- type of annuity where there is a sequence in which the first payment does not occur at
the beginning of at the end of the first period, but at some later date.

Present value of deferred annuity () present value A of an ordinary annuity is discounted to the
present

Deferred Annuity ( S ^) the same as the amount as the ordinary annuity.

- the value of the annuity at the end of the term. It is the sum of all periodic payments made at the end
of each term plus all accumulated compound interest.