End of the month. Another day of math.Section 5.3 and 5.4 today.
5.3 is Annuities and Sinking Funds. An annuity is a sequence of equal periodic investments or deposits. In an ordinary annuity, the deposits are made at the same time interest is applied. The amount of the annuity is th sum of all deposits made plus all interest accumulated.
The amount of an annuity can be calculated as A = P * ( ( (1 + i)^n – 1 ) / i ).
A sinking fund is a specialized form of an annuity. Rather than being an open-ended accumulation of money over time, a sinking fund is terminated when its deposits plus interest equal some predetermined amount. The formula used for a sinking fund is the same as the formula used for calculating annuities, but normally one is solving for the payment size rather than amount.
5.4 is on the present value of an annuity and amortization.