Although I just had one question. I am just having a little bit of difficulty of how you got 10000 = X * a(24).10
Oct 7th 2010, 04:51 AM
I am new to studying annuities, but it's my understanding that you use a(n)i when discussing "present value" and s(n)i when disscussing "future value." We want to purchase an annuity-immediate that has a present value of 10,000, so we are using a(n)i. Our n = 24 = 24 one year payments. We are given that i = .10.
Thus we get the PV = 10,000 = (Our Payment Amount) * a(n)i = X * a(24).10
We used s(n) earlier when discussing the accumulated value (i.e. future value) that the fund earning 5% would reach. In this case,
FV = (Our Payment Amount) * s(n)i = X * s(24).05
I hope this answered your question -- sometimes I still get a bit confused on when to use a(n)i vs s(n)i