Download Math 1220 Section 11.1 Notes

Chapter 11
Annuities, Stocks,
and Bonds
Section 1
Annuities and
Retirement Accounts
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Basic Terms with Annuities
Annuity– series of equal payments made at
regular intervals
Ordinary annuity– payments are made at the end
of each period
Payment period– time between payments
Term of the annuity– time needed for all
payments to be made
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Basic Terms with Annuities
Amount, compound amount, or future value of
the annuity– total amount in an annuity on a
future date
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Find the Amount of an Annuity
Number from amount
Amount = Payment ×
of an annuity table
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Example
Micah Samson’s employer contributes up to 4% of
his $34,000 salary into his retirement plan.
Rodriguez decides to put 4% of his salary into the
retirement plan. Using annual calculations, find the
future value in 8 years
(a) if the account earns 4% compounded annually
and
(b) if the account earns 3% compounded quarterly.
(c) Then find the difference between the two
future values.
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Find Amount of an Annuity Due
An annuity in which payments are made at the
beginning of each time period is called an
annuity due.
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Find Amount of an Annuity Due
Step 1 Add 1 to the number of periods.
Step 2
Amount = Payment ×
Number from amount
of an annuity table
Step 3 Subtract 1 payment.
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Example
Jean set up an investment program using an
annuity due with payments of $200 at the
beginning of each month. Find (a) the amount of
the annuity and (b) the interest if she makes
payments for 10 years into an investment account
expected to pay 4% compounded monthly.
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Page 421
Exercise 16
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