LESSON 29
GENERAL ANNUITY
OUTLINES
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FUTURE VALUE OF A GENERAL ANNUITY
PRESENT VALUE OF A GENERAL ANNUITY
FAIR MARKET VALUE OF A CASH FLOW
STREAM THAT INCLUDES AND ANNUITY
R ECALL T ERMS (FROM LESSON 28)
General Annuity – an annuity where the length of the payment
interval is not the same as the length of the interest
compounding period
General Ordinary Annuity – a general annuity in which the periodic
payment is made at the end of the payment
interval
Examples:
1. Monthly installment payment of a car, lot, or house
with an interest rate that is compounded annually.
2. Paying a debt semi-annually when the interest is compounded
monthly
F UTURE & P RESENT V ALUE OF A
G ENERAL O RDINARY A NNUITY
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EXAMPLES
EXAMPLE 1
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EXAMPLE 2
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SOLUTION
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T ERMS
Cash flow – payments received (cash inflows; positive numbers) or
payments or deposits made (cash outflows; negative numbers)
Fair market value – Economic value of cash flow (payment stream) on
a particular date refers to a single amount that is equivalent to the value
of the payment stream at that date.
Focal date – that particular date
Fair Market Value = Downpayment + present value
LESSON 30
DERERRED ANNUITY
OUTLINES
• DEFERRED ANNUITY
• PRESENT VALUE OF A DEFERRED
ANNUITY
• PERIOD OF DEFERRAL OF A DEFERRED
ANNUITY
D EFINITION O F T ERMS
Deferred Annuity – an annuity that does not begin until a given time
interval has passed
Period of Deferral – time between the purchase of an annuity and the
start of the payments for the deferred annuity
Time Diagram for a Deferred Annuity
R*
0
1
R*…
2
R*
k
R
k+1
R…
k+2
R
k+n
Period of deferral is k because the regular payments of R start at time k + 1.
The notation R* represent k “artificial payments”, each equal to R, but are not actually
paid during the period of deferral
P RESENT V ALUE OF A D EFERRAL
A NNUITY
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EXAMPLES
EXAMPLE 1
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SOLUTION
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SOLUTION
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