SL 1.7—Amortization and annuities

For an amortization or annuity calculation, identify present value, future value, periodic payment, periodic interest rate and number of periods, then enter them with the financial solver's sign convention. In IB examinations, payments occur at the end of each period.

For monthly deposits of $200 over 24 months at a monthly rate of 0.004, enter$N=24$,$I=0.4$percent per period,$PV=0$and$PMT=-200$, then solve for the future value. Check that the balance exceeds the total deposits because interest has accumulated.

Match the annual rate to the payment period and keep cash inflows and outflows with opposite signs. Knowing an annuity formula may help understanding, but the formula itself is not examined; beginning-of-period annuity-due settings are outside the stated examination convention.