A+ » VCE »

# FM Annuities

## 5.3 Modelling Annuity Investments using Technology

Note: if you cannot remember how to model reducing balance relations with regular repayments, revise notes for 5.1 Modelling Annuity Investments.

### Guide to Analysing Annuity Investments using Technology (Casio Graphics Calculator)

Note: if you cannot remember how to use the Casio Financial Calculator, revise notes for 3.3 Modelling Reducing Balance Systems with Regular Repayments using Technology.

• The annual interest rate should be entered/calculated as a positive value.
• The initial value (PV) should be entered/calculated as a negative value (remember we justify this by saying we must lose this amount to create the investment).
• The payment (PMT) (i.e. the amount withdrawn) should be entered/calculated as negative (we can justify this by saying we lose this amount per compounding period to the investment)
Read More »5.3 Modelling Annuity Investments using Technology

## 5.2 Modelling Annuity Investments using Tables

Note: if you cannot remember how to model reducing balance systems with regular repayments, revise notes for 5.1 Modelling Annuity Investments.

### Guidelines to use a Table for Annuity Investments

• Tables provide a convenient method for analysing annuity investments, especially when there are regular systemic changes (e.g. the interest rate or repayments change regularly).
• The columns of the table should list, the compounding period, payment, interest earned, principal addition (i.e. the amount the system has increased during each compounding period) and the balance at the end of the compounding period.
• The principal addition can be calculated by as follows:
Read More »5.2 Modelling Annuity Investments using Tables

## 5.1 Modelling Annuity Investments

### Modelling using Recursion Relations

• An annuity investment describes a system which has a positive interest rate, and positive deposits made at the end of each compounding period.
• We can use the simple recursion formula to model this system:
Read More »5.1 Modelling Annuity Investments

## 4.4 Annuities and Perpetuities

### Annuities

Note: if you cannot remember what a compound interest system is, revise notes for 2.1 Simple and Compound Interest.

• Compound interest systems with regular payments or withdrawals are often known as annuities.

### Perpetuities

• Perpetuities are a special case of annuity, which does not change value.
Read More »4.4 Annuities and Perpetuities