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How would one approach question 2.20 of the extra tut questions?

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asked Apr 11, 2016 in BUS 2016H - Financial Mathematics by michwairish (400 points)

Two annuities will each be payable monthly in arrear for 10 years. Under annuity \(A\) the monthly payments made in year \(t\) will be \(11−t\), while under annuity \(B\) the monthly payments will be \(1.05t\) . At an effective rate of \(i\) per annum the present value of annuity \(A\) is 5 times that of \(B\). Find \(i\) to the nearest 12%

I can find an annuity formula for annuity \(B\), but I'm struggling to get one for annuity \(A\)?

commented Apr 11, 2016 by simon_rigby (4,220 points)

Hi @michwairish. I've edited your post and added the actual question (this is always better than asking people to look it up in external sources). \(A\) is a type of annuity known as a 'decreasing annuity'; if you want to read ahead, the formulas usually look something like \((Da)_{\bar{n|}}\).

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