ANNUITY - a series of equal payments occurring at equal intervals of time.

Types of Annuity:
a. Ordinary annuity
b. Annuity due
c. Deferred annuity

Application of Annuity

Installment purchase

Amortization of loan

Depreciation

Payment of insurance

Amortization - is any method of repaying a debt, the principal and interest included, usually by a series
of equal payments at equal interval of time.

Ordinary Annuity
An ordinary annuity is one where the payments are made at the end of each period.
Finding P when A is given
P

n-1

Finding F when A is given

F

n-1

A
A(F/P, i%, 1)

A(F/P, i%, n-3)

A(F/P, i%, n-2)
A(F/P, i%, n-1)

Annuity Due
An annuity due is one where the payments are made at the beginning of each period.
Finding P when A is given
P

n-1

P = A + A [(1 + i) n-1 1 / i (1 + i) n-1]

Finding F when A is given

F = P(1 + i)n-1

Deferred Annuity
A deferred annuity is one where the first payment is made several periods after the beginning of the
annuity.
Finding P when A is given
P
m periods

n periods

A(P/A, i%, n)(P/F, i%, m)

m
0

n-1

A(P/A, i%, n)