Compound Sum of an Annuity
An annual is a stream of equal annual cash-flows. Annuities involve calculations based upon the regular periodic contribution or receipt of a fixed sum of money. The calculations required to find the sum of an annuity on which interest is paid at a specified rate compounded annually are illustrated in Example 2.5.
EXAMPLE 2.3 :
Mr X deposits Rs 2,000 at the end of every year for 5 years in his saving account paying 5 percent interest compounded annually. He wants to determine how much sum of money he will have at the end of the 5th year.
Solution. Table 2.6 presents the relevant calculations.