Present value annuities (1 Viewer)

[Becky222]

Is both the complex formula for present value annuities and N=A divide by (1+r)^n the same thing?

I find it hard to believe since the traditional one is so complicated however i am looking at the general maths formula sheet and it states them both.

Thanks

 

[Drongoski]

Future Value = Present Value x (1+r)^n

Say n = 10 yrs

To find value at yr-9, u move back 1 yr from yr 10 which is PV x (1+r)^10

So to get yr-9 value, u divide yr-10 value by (1+r)^1 which is the same as PV x (1+r)^9

To find yr-6 value u divide the FV which is PV x (1+r)^10 by (1+r)^4

 

[PC]

They're not the same thing.

An annuity means that you deposit a regular amount in an account, say, at the end of every month for 3 years. You'll get interest along the way, and at the end of the 3 years, the investment will be worth something. BUT you could also get that final amount in another way instead. You could just put a large single amount in at the start of the 3 years, let it earn interest under compound interest, and pull out the same total amount at the end.

Present Value (N) is the large single amount you can put away now instead of small regular amounts at the end of every month.

The big complicated one (N = M ...) is used if you know what the small regular payments are (M).

The small one (N = A ...) is used if you know what the final amount needs to be (A).