BUS 111 Lecture Notes - Lecture 1: Sinking Fund

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Def: a series of equal payments at equal time periods is called an annuity. If the frequency of payments matches the compounding periods, it is called an ordinary annuity. (1 + i)n-1. The future value of annuity is given by: i. Where: s= future amount , r= amount of regular payment , i= rate/number of. Solution: compounding periods, n= time in years * compounding periods. Example: suppose that in order to save for a down payment on a house, you invest /month into an account that earns 3% interest compounded monthly for 5 years. S= 1000{ (1+. 03/12)60-1/ (. 03/12) } ,646. 71 total. Example: you want to save ,000 to buy a lamborghini. Every 6 months you need to deposit ,137. 58. Note: sometimes this is called a sinking fund. If you make payments at the beginning of the compounding period we call this annuity due, and the future value is given by:

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