Annuity Immediate and its formula
Let's understand Annuity-immediate...
Consider an annuity with payment of 1 unit (where 1 unit might be 1000 or 10,000 bucks) each, made at the end of every year for n years.
This kind of annuity is called an annuity-immediate or annuity in arrears.
The Present Value of an annuity is the sum of the present values of all payments.
Let's take an example:
Calculate the present value of an annuity-immediate of amount $1000 paid annually for 10 years at the rate of interest of 10%.
To find the present value of this annuity, let's create the formula...
v = 1 / (1+i)
The present value of the jth payment is v^j.
You can use this formula to calculate the present value of this annuity.
The answer is: 6,144.57
The formula for the future value of annuity immediate is:
Written by: Kalpesh Agrawal (Jr. Actuarial Officer- IIB)