Hi,
Would someone be able to explain to me how annuity works. I know that there is a formula used for it: Vn+1=RVn - D and that it is used to describe how much money is left in an investment. But I don't get the context of it or how it is used. For instance, I don't understand why the D value(payment received) minuses the value of the annuity. If someone is receiving money from the bank or insurance company, wouldn't there be more money in the investment?
Would appreciate all help given
Thanks
Take this scenario,
you invested $1000 in a bank. Lets ignore interest rate just for now.
if bank said every months they will give you payment of $10.
you will gradually lose money from the $1000, on a realistic interest rate xD.
So, in this scenario Vn<V0. as some money is always given to you per n period.
and the difference between the money you gained and the initial amount = interest earned.
Scenario 2,
this time you will be putting D payment in the bank instead of recieving payment. so D is added onto V0.
...
on the cas, think from your perspective. The way i have done and taught others for sign is;
+ if the money is coming into your pocket
- if the money is going out of your pocket.
Always make sure FV and PV have different signs.
And think realistically, think what does negative sign what really means. like there is no such thing as negative money, but what it means is either you are loosing money/ owe money. Right! just look for the meaning and you will be fine
Oh okay, so for annuities, think of it in terms of a bank perspective, not the person investing perspective?
Well, it makes more sense that way to me.
OR i think i am the money xD and what does effect does D has on me.
There are multiple ways!
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