Computing Simple Annuity

• What is a sequence of payments made at equal time periods called?

  Annuity
• What is an annuity where payments are made at the end of each period?

  Ordinary annuity
• What type of annuity has payment intervals not the same as interest periods?

  General annuity
• What is an annuity where the payment interval is the same as the interest period?

  Simple annuity
• What is an annuity in which payments begin and end at definite times?

  Annuity certain
• What does the term "payment interval" refer to in an annuity?

  The time between successive payments
• What is the "term of annuity"?

  Time between the first and last payment interval
• What is the amount of each payment in an annuity called?

  Periodic payment
• What does the future value of an annuity represent?

  Sum of future values of all payments
• What does the present value of an annuity represent?

  Sum of present values of all payments
• What are examples of contingent annuities?

  • Life insurance
  • Pension payments
• What are examples of cash value annuities?

  • Car installment
  • Appliance
  • House and lot
  • Tuition fee
• How is the cash value of an annuity calculated?

  Down payment plus present value of installments
• What is the first step in finding the present value of an annuity immediate?

  Discount each payment at the beginning of the term
• What is the formula used to find the present value of an annuity immediate?

  Similar to the solution of Example 3