Expert: Paul Klarreich - 1/16/2010

Question
Hi Paul! I am currently working on Finance Math in my functions course, but the problem is, I don't know how to identify an present or future annuity. My teacher explains to me that present annuities have words such as price, cash, and now.

Let me give you an example, Bob wants to buy a car for $8700. The finance rate is 18%/a compounded annually. He wants to repay in 4 years, making equal payments at the end of each month. Determine the monthly payment.

Do you have any suggestions on how to identify present or future annuities? THANK YOU VERY MUCH.

Answer
Questioner: Robert
Country: Canada
Category: Advanced Math
Private: No
Subject: Annuity - Present or Future?
Question: Hi Paul! I am currently working on Finance Math in my functions course, but the problem is, I don't know how to identify an present or future annuity. My teacher explains to me that present annuities have words such as price, cash, and now.

Let me give you an example, Bob wants to buy a car for $8700. The finance rate is 18%/a compounded annually. He wants to repay in 4 years, making equal payments at the end of each month. Determine the monthly payment.
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You need two things -- a mortgage table and a better teacher.

An annuity is the reverse of a mortgage or installment loan --

Annuity:  You pay a sum upfront, you receive monthly payments for a period of months.

Mortgate: You get a sum upfront, you make monthly payments for a period of months.

So look up mortgage tables, in which you enter the APR, the period, and the principal.

Studying financial math is always bad -- math teachers hate it and business teachers have no clue about teaching math.