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1 ES 125 | E N G I N E E R I N G E C O N O M Y
Periodic payment of annuity, A
Value of A if F is known:
𝑭𝒊
𝑨=
(𝟏 + 𝒊)𝒏 − 𝟏
Value of A if P is known:
𝑷(𝟏 + 𝒊)𝒏 𝒊
𝑨=
(𝟏 + 𝒊)𝒏 − 𝟏 As indicated in the figure above, F1 is the sum of ordinary annuity
of n payments. The future amount F of annuity due at the end
EXAMPLE: If $ 500 is invested at the end of each year for 6 year at
of nth period is one compounding period away from F1. In
an effective annual interest rate of 7 %, what is the total dollar amount symbol, F = F1(1 + i).
available upon the deposit of sixth payment?
Solution:
EXAMPLE: A man bought a car at $ 60,000 payable in 12 quarterly
payments, each installment payable at the beginning of each period.
How much is the amount of each payment if rate of interest is 24 %
compounded quarterly?
Solution:
Solution:
ANNUITY DUE
In annuity due, the equal payments are made at the beginning of each
compounding period starting from the first period. The diagram below
shows the cash flow in annuity due.
2 ES 125 | E N G I N E E R I N G E C O N O M Y