Annuity DOCX

Title	Annuity
Author	Jayr Menes
Pages	10
File Size	240.1 KB
File Type	DOCX
Total Downloads	33
Total Views	157

Summary

IE 307 Engineering Economy 2015-2016; Summer Annuity & Capitalized Cost Engr. Justiniano B. Menes Jr. Annuity (A) Series of equal payments made at equal intervals of time. Instances where annuities occur: i. Payment of a debt by a series of equal payments at equal intervals of time. ii. Accumula...

Description

IE 307 Engineering Economy 2015-2016; Summer Annuity & Capitalized Cost Engr. Justniano B. Menes Jr. Annuity (A) Series of equal payments made at equal intervals of tme. Instances where annuites occur: i. Payment of a debt by a series of equal payments at equal intervals of tme. ii. Accumulaton of certain amount by setng equal amoun periodically. iii. Substtuton of a series of equal amounts periodically in lieu of a lump sum. Classifications of Annuityo i. Simple annuity – payment period is the same as the interest period. If the payment is made monthly then the conversion of money also occurs monthly. ii. General Annuity – Payment period is not the same as the interest period however it can be converted to simple annuity by making the payment period the same as the compounding period by concept of efectve rates. Types of Annuitieso i. Ordinary annuity – one where the equal paymentd are made at the end of each payment period startng from the frst period. ii. Deferred Annuity – is one where the payment of the frst amount is deferred a certain number of periods afer the frst. iii. Annuity Due – one where the payments are made at the start of each period, beginning from the frst period. iv. Perpetuity – annuity where the payment periods extend to forever or in which the priodic payments contnue indefnitely. ORDINARY ANNUITY In ordinary annuity, the equal payments are made at the end of each compounding period startng from the frst compounding period. oour essental elements of ordinary annuity: 1. Amounts of all paymnts are equal 2. Payments are made at equal intervals of tme. 3. oirst payment is made at the end of the frst periodand all payments thereafer are made at the end of the corresponding period. 4. Compound interest is paid on all amounts in the annuity. Characteristcs of ordinary annuity: 1. P – present equivalent value, occurs one interest period before the frst A (uniform amount) 2. o – future equivalent value, oocurs at the same tme as the last A and n intervals afer P 3. A – annual equivalent value, occurs at the end of each period. Annuity is based on the principles of compound interest. Hence, computaton of the sum of annuity may be done using the formula of geomtric progression. Solving for the common rato (r): r = a2/a1 = A(1+i)/A = (1 + i)...