Exam FM/2 Review Annuities. Basics. Annuities are streams of payments, in our case for a specified length Boil down to geometric series. Two main formulas. For annuities due (double dots), simply change denominator from i to d Once again, if unsure make a TIMELINE. Deferred Annuities.
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To accumulate 8000 at the end of 3n years, deposits of 98 are made at the end of each of the first n years and 196 at the end of each of the next 2n years.The annual effective rate of interest is i. You are given (1+i)^n=2.0Determine i. ASM pg. 123
Dottie receives payments of X at the end of each year for n years. The present value of her annuity is 493.Sam receives payments of 3X at the end of each year for 2n years. The present value of his annuity is 2748.Both present values are calculated at the same annual effective interest rate.Determine v^n. ASM p.136
A loan of 10,000 is to be amortized in 10 annual payments beginning 6 months after the date of the loan. The first payment, X, is half as large as the other payments. Interest is calculated at an annual effective rate of 5% for the first 4.5 years and 5% thereafter. Determine X. ASM p.153
Kathryn deposits $100 into an account at the beginning of each 4-year period for 40 years. The account credits interest at an annual effective interest rate of i. The accumulated amount in the account at the end of 40 years is X, which is 5 times the accumulated amount in the account at the end of 20 years. Calculate X. ASM p.165
Olga buys a 5-year increasing annuity for X. Olga will receive 2 at the end of the first month, 4 at the end of the second month, and for each month therafter the payment increases by 2. The nominal interest rate is 9% convertible quarterly. Calculate X. ASM p.205
A perpetuity-immediate pays 100 per year. Immediately after the fifth payment, the perpetuity is exchanged for a 25-year annuity-immediate that will pay X at the end of the first year. Each subsequent annual payment will be 8% greater than the preceding payment. Immediately after the 10th payment of the 25-year annuity, the annuity will be exchanged for a perpetuity-immediate paying Y per year. The annual effective rate of interest is 8%. Calculate Y. ASM p.228