Annuity :

Annuity is an regular and equal payment which is made after a certain time span. Time span may be yearly , halfyearly, quaterly, monthly and etc.

Example of Annuity :

→ Payment of housing loan, vehicle loan, life insurance premium and etc.

→ Immediate annuity or Annuity regular or ordinary annuity :- In this case payment/receipt takes place at the end of the period.


→ Annuity due or Annuity immediate:- In this case payment/receipt takes place at the beginning of the period.


IMPORTANT FORMULAS OF ANNUITY

Immidiate Annuity :

(1) A =

c/i

[(1 + i)ⁿ - 1]

(2) P =

c/i

[

(1 + i)ⁿ - 1/(1 + i)ⁿ

]

Annuity Due

(1) A =

c(1 + i)/i

[(1 + i)ⁿ - 1]

(2) P =

c(1 + i)/i

[

(1 + i)ⁿ - 1/(1 + i)ⁿ

]

A = Amount or Accumulated value future value .

P = Present value or principal value .

C = Annuity .

i =

r/i00

, r = rate of interest .

n = time (in years).

Practice Question