Section 6: Arithmetic Annuities A sequence of terms forms an arithmetic progression if there is a “common difference” between consecutive terms of the sequence. This means that given any term in the sequence, we can get the next term by adding the common difference, denoted by d. Note that d may be negative, in which case we get from one term to the next by subtracting the common value. An arithmetic annuity is an annuity for which the payments form an arithmetic progression. Unlike geometric annuities, there are special actuarial annuity symbols for the present and accumulated values of arithmetic annuities, which we'll get to below. Note that if <0 then the payments are decreasing, whereas ifd > 0 the payments are increasing. If the first payment is 1 and d = 1, the payments are 1, 2, 3, v=, and we call this annuity a basic increasing annuity. If the first payment is n and d 1, the payments are n, n= 1, .., 1, and we call this annuity a basic decreasing annuity. Timelines and Notation: (Basic Increasing Annuity) Tanai Ae Laing a Da a (Basic Decreasing Annuity) A al te OG \ go periodic eer t as | Ome Os)me \ Walale Oda:VEP's and CRF's for Basic Increasing and Decreasing Annuities car Gy — 1 (lady 2 v + Qe? +--+ nv i ig — nv’ tL = Wag +0) (ly "2 1+ 204302 +t nw! syn Uda 2 +0" 42-40" +42 = (Ia)iqy (1 +)" cnr Sy (dq 2 +O" +2-A4F 08 + 4n- td (Dag "2 nv + (m= 1) sv? tot v" (Day "2 n+ (=v tt vt = (Da) (1+9) car (1+ 0" = i (Ds)q "FE ne AFD" + (= 1) LEDER Ht = (Da)ay- (+ 140" (Dag Fn AFD" 4+ -1)- AFD + say SME oy +0 Note that by knowing the two boxed formulas, we can easily derive the others by using the relationship in the last equality of each formula. The following two formulas are used often on exams. Timeline and Formula: (PV of Basic Rainbow Annuity Due) 1 peak =f" boa 1A A assent feline c= pene Po PHO PHAR PHSR ww periodic eurModule 2 Section 6 Problems: 1 Determine 12v + 11v? + + v™* using / = 0.03. 2. Determine v + 2v? + 3v5--+ 12v" using i= 0.03. 3, Determine (1.025)?5 + 2- (1.025)** + 3 - (1.025)? «++ 25 - (1.025) 4, Determine 6 + 7v + Bv? +--+ 27v*? using i= 0.05 5. Determine 37 + 42(1.07) + 47(1.07)? + + 92(1.07)"" For Numbers 6 through 14, determine the value of the given annuity at the given valuation date using the given interest rate. 9 7 6 F§ 4H 3S ait a ot ae e Pv 5s 4 3 2 + . 7 te pp | ve. 04 4 AV 3 b= OS 9 19 An ° vr " ' annud etrectie inberest . re = ,C2|6 Seat — 4 ah ported s AVEOM- End of phoath t 4 ab vey 2088 of Eom _y Eom } Eom — c= 05 vb | bore 4 12 PY A IS es OR. IS IS OOS ania eflekwe as d intense rate =.06 3 yes 4! aes e4as iv Fom - Ex. oa h Ly 2 Fou xe 4 othe 1B at we aT ak anu etfeckive - | cém_| Bom { Eon EoMt | iskemest rabe = 0S yes 0 ' a BZ tee 4 2 Av roa 3 rm 13 weee?® 2 8 . 13, I nt periodic eir=,03 A ry 13 te 1A ee . uM {+--+ —- periodic ede = OAS & pv 15. Determine the periodic effective interest rate, i, given: ‘4 1S pa, az PYslOSST uss €Does te Podele 2 Section 6 Feble 1) 68.1999 - 2) bl, 2022 B) 410.4800 uy 201. HIS 5) 125.1334 6) Si.68iN TD) 48.0495 8) 4s. Sele a) 1090-4954 id) 4bb-4S56 i) 193-534 (2) ASB 2654. 7634 (3) 116.4983 [4) S320 Ib) 0.028