What You Need to Know

A future value annuity accumulates regular deposits with compound interest over time

A present value annuity determines the lump sum equivalent of a series of future payments

Loan repayments use annuity formulas to calculate the fixed periodic payment needed to repay a debt

The total interest paid on a loan equals (total repayments) minus (original principal)

Key Vocabulary

A financial product providing a series of equal payments at regular intervals over a specified period

The total accumulated value of an annuity at the end of the investment period including all interest

The current lump-sum equivalent of a future series of annuity payments at a given interest rate

The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest

Select the correct answer for each question. Click "Check Answer" to see if you are right.

Question 1

Which formula element represents the sum of the geometric series in annuity calculations?

[(1+r)ⁿ − 1] / r P × r P / (1+r)ⁿ r × n

Question 2

A loan's total repayments are $24 000 and the original principal was $20 000. What is the total interest paid?

$44 000 $4 000 $20 000 $2 000

Question 3

What happens to each periodic payment amount if the loan term is extended while keeping the same principal and interest rate?

Payments increase Payments stay the same Payments decrease Payments double