I am just surprised that 8-year-old youtube video explanation is better than the explanation of my 2023 college professors I had no clue what annuity is or present value
I'd like to ask if when would you use the formula for present value and future vavlue in annuity?? I get confused how to apply those formulas of which one should be used
Why is n 10 and in the previous video I watched Welcome to Annuities n is 5, but there were 6 payments ? Why wouldnt this be 9 payments since it is at the end of the year?
It's because there will also be a payment at the end of the 10th year, too. So the 1st payment will be at the end of the 1st year (and it will have 9 years to grow), the 2nd payment will be at the end of the 2nd year (and it will have 8 years to grow, etc, until finally the 10th payment will be at the end of the 10th year (and it will have 0 years to grow; i.e. it won't grow at all). I hope that makes sense!
@@michaelfulkerson2486 sir this is ok but still I think as you said in the previous video in the introduction one where we took 5 years , here also instead of 10 , 9 would be appropriate. As you said in 10th years it's not growing so why do we need to consider that cash flow since it is not compounding. Clarify again please
Hi Vivek. That's a good question. The reason to use an annuity in that case is because most people don't have all of the money ($5000) right at the start... if they did, then you are correct that it would be best for them to invest it all right away. Usually, though, people get a paycheck each month (or week or year, etc), and they invest their money accordingly over monthly (or weekly or yearly) intervals. Does that make sense?
@@michaelfulkerson2486 Thankyou.I had one more question why future worth of each annuity is calculated separately .If you pay 500$ at the end of year then at the end of second year amount should be $500(new annuity)+500(1+i)^1 why it is calculated separately like 500(i+1)^5+500(i+1)^4+....?????
