Chapter 5 Section 3 and 4
The rst two formulas you will use when you want to nd the present value of an
annuity.
1
A=R
A=R 1
(1+ nr )
r
n
(1+ nr )
r
n
nt
End of payment period
nt+1
+ 1 Begining of payment period
The second two formulas you will use when you want to nd the future value of an
annuity.
(1+ r )nt 1 A = R nnr
(1+ r )nt+1
A = R n nr
1
End of payment period
1 Begining of payment period
Now in section 5.4 the only formula that you will need is the very rst present
value formula where payments are at the end. Now for the loans in section 5.4 your
periodic payments are doing two things. They are rst paying o all the interest that
you owe on the previous balance and then they are repaying part of the amount of
the loan. So you might be asked to nd the following:
Total interest paid=nance charge=ntR A
Interest in rst payment=A nr
Principal repaid in the rst payment=R Interest in rst payment