Present value of ordinary annuities
General Mathematics · Unit 4 — Investing and netw orking · Loans, investments and annuities 1
Learning objectives (3)
LO-1Solve practical problems involving the present value of an ordinary annuity, including determining the total amount of the annuity, periodic payment, total payments and total interest. General Mathematics 2025 v1.3LO-2Use a recurrence relation to model the present value of an ordinary annuity, e.g. reducing balance loan or retirement pension with periodic payments where interest is calculated before the periodic payment is made. 𝐴𝑛+1 = 𝑟𝐴𝑛 − 𝑑 where 𝐴𝑛+1 is total amount at the beginning of the (𝑛 + 1)th period, 𝐴𝑛 is total amount at the beginning of the 𝑛th period, 𝑑 is periodic payment, and 𝑟 = 1 + 𝑖 where 𝑖 is interest rate per compounding periodLO-3Use the present value annuity formula to model the present value of an ordinary annuity, e.g. reducing balance loan or retirement pension with periodic payments where interest is calculated before the periodic payment is made. 𝐴𝑃𝑉 = 𝑑 (1−(1+𝑖)−𝑛 𝑖) where 𝐴𝑃𝑉 is total amount, 𝑑 is periodic payment, 𝑖 is interest rate per compounding period and 𝑛 is number of compounding periods
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