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5.3.1 FUTURE VALUE OF AN ANNUITY
Instructions: Use the following tutorial to help
introduce or reinforce the concept of Future Value of Annuity.
Read through the introduction, then study and familiarize
yourself with the definitions of terms. Next, use
the incremental calculator to study each step of
the process of determining Future Value of Annuity.
Finally,
use the calculator for examples to quiz yourself.
An annuity is a sequence of
payments made at regular time intervals. The time period in which
these payments are made is called the term
of the annuity. The total amount in the account, including interest,
at the end of the term of an annuity is called the future value of
an annuity. The expression inside the brackets is called the
compund-amount factor.
Examples of annuities are regular deposits to a savings
account, monthly home mortgage payments, and monthly insurance
payments.
The following is the formula for future value of an annuity:
S = R [ ((1+i)n-1)/ i]
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