Time Value of Money – Annuities
In this video, we look into the time value of money – annuities
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00:50 – Principles of Annuities
02:55 – The Special Case of Perpetuities
03:15 – Simple Annuity and Annuity Due
03:45 – Manual calculation of Annuities – Example
06:15 – Formula for Annuities
09:15 – Integrated formulas for Annuities
10:30 – Calculation Example
13:55 – Annuities applied in Excel
15:00 – Conclusions
An annuity is a special case of FV calculations where a set of identical equidistant (typically yearly) payments are made and the FV is calculated at the end of the period. A simple annuity is paid at the end of the period while an annuity due is paid at the beginning of the period.
Perpetuities are a special case of annuities where the number of periods considered is infinite.
Bases on the definition of the annuities, we can determine its formula or use the in excel integrated formula of FV:
FV(rate,nper,pmt,[pv],[type])
rate = the periodic interest rate
nper = the number of periods considered
pmt = the periodic payments (has to be negative value)
[pv] = present value at the start of the period (if committed = 0)
[type] = 0 or 1, 0 = simple annuity, 1 = annuity due, if committed 0 is used
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