Calculate the present value of a savings annuity, a payout annuity, or an amortized loan.
Calculate the required payment on an annuity or amortized loan.
Calculate the interest and principal components of a payment on an amortized loan.
Calculate the total interest earned in a savings or payout annuity or paid on an amortized loan.
Analyze and compare options for savings and loan products to make informed financial recommendations.
In Section 3.4, we learned how to calculate the future value of a single deposit of money, known as a lump sum, invested at compound interest. In this section, we will explore situations where a series of payments are made or received at equal intervals.
We will consider three common situations involving regular payments:
Saving for retirement or other future expense by making regular deposits into an account. This is called a savings annuity.
Receiving regular payments from a retirement account. This is called a payout annuity.
Making payments on a loan in which interest paid on each payment is based on the remaining balance. This is called an amortized loan.
