Annuities and Mortgages

Definition:
Series of equal cash flows that you pay or
receive during a period of time.

• 2 types:
1.End of period (ex: Mortgage, car payments)
2.Beginning of period (ex: Rent)
 Future value of annuities (End of period)
• Annuity of 2000$ at the end of each year during 10 years
• Interest rate: 10% compound semi-annually
• FVA ????

• Same problem if the deposits are made in the beginning of

the period….FVA ????

• Same problem if the deposits are made semi-annually

• Same problem if the deposits are made quarterly

 FVA
1. Annuity of 1000 $/year (end of the year) during 5 years.
Then we leave it as a deposit for another 5 years.
• Interest rate : 10% comp quarterly for 5 years
• Interest rate : 8% comp semi-annually afterwards.

2. Annuity of 1000 $ / year (end of the year) during 10 years.

• Interest rate : 10% eff-ann for 5 years.
• Interest rate : 14% eff-ann afterwards.

3. Problem 2 again with inversed rates.

 FVA

1. 1 000 000 $ in 40 years (retirement)

• Interest rate : 8% comp quarterly for 20 years
• Interest rate : 12% comp quarterly afterwards
• “C” at the end of each quarter ?????

2. Same problem with C at the beginning of each quarter.

 Present value of an annuity

• Case of all amortized loan (ex: car loan,

mortgages, personal loan).
• The amount of loan is the present value of the
payments.
• The interest rate and “n” must correspond to
the frequency of payments.
 PVA
• Loan = 100 000$
• Monthly payment (end of month) over 10
years.
• Interest rate = 10% compound semi-annually
• Payments ????

• Same problem with payments in the

beginning of month.
 PVA

• Loan over 20 years.

• Quarterly payments of 1800$ (end of quarter).
• Interest rate = 8% compound semi-annually
• Amount of loan????

• Same question with interest rate compound

quarterly.