Welcome to the ordinary annuity calculations tutorial
using the BA II Plus calculator. I'm Joshua Emmanuel
Ordinary annuity simply implies
set payments are made at the end
of the payment interval. Like at the end of the month, or at the end of the year
or at the end of the quarter. Let's look at a few examples
Example 1: Find the future value
of four hundred dollar payments made at the
end of every month for five years
if interest is 3.2 percent compounded monthly.
In this example payments are made
at the end of every month and interest is also compounded
monthly payment interval and compounding frequency
coincide so we refer to that as simple
annuity. We start by pressing
2ND P/Y. P/Y basically stands for
payments per year. Since payments are made every month
there would be 12 payments per year so we enter 12
ENTER, scroll down
It is also a compounded monthly so we enter 12
ENTER and then
we can quit that mode. Next we enter
the time value of money values and then compute
future value. So for N we have five years
and payments are made at the end of every month so total number of payments
will be
5 times 12
which is sixty
payments in total so we press N
interest rate is 3.2; we press 3.2
I/Y and present value
we don't have present value we just have month end payments so
we'll do zero present value, and for the payments
we enter them as 400
make them negative because money's going out
and then press PMT and we compute future value.
so the future value is 25,989.15
$25,989.15. Let's look at another example.
Example 2
What is the present value of payments of 250 dollars
made at the end of every quarter for twelve point five years
at 7.5 percent compounded semiannually
so in this case we see that payments are made quarterly
but interest rate is compounded semi-annually
Payment interval and compounding frequencies
are different so we call this general
annuity. So again to begin we need to set
our P/Y. 2ND P/Y
so payments are made at the end of every quarter.
Quarterly payment require that we set
P/Y to 4 so press 4
ENTER, we scroll down
and this is compounded semiannually which means twice a year
so we set C/Y to 2 ENTER
and then we quit that mode. 2ND QUIT
Next we enter N. In this case we have
quarterly payments made for 12 and half years
so we have 12 point
5 times four
So that is 50 payments all together
now we press N interest rate is 7.5 percent 7.5
I/Y. We want to compute the present value so we don't have that. We skip that for
now
payment is 250 so we enter that
as 250 negative payment
Since there's no future value, we set future value to zero
0 future value, and then we compute
present value so the present value
$8,096.11
Thanks for watching