Arithmetic Increasing Annuities Concepts

The video tutorial covers arithmetic increasing annuities, contrasting them with geometric annuities. It provides a detailed example and explains how to calculate the present value of such annuities. The tutorial derives a closed formula for the present value, using geometric series for simplification. It concludes with the final formula and its variations for different annuity scenarios.

What is the main difference between arithmetic and geometric annuities?

• Geometric annuities decrease by a fixed amount.

• Arithmetic annuities increase by a fixed amount.

• Arithmetic annuities increase by a fixed percentage.

• Geometric annuities increase by a fixed amount.

In an arithmetic increasing annuity, if the first payment is $100 and it increases by $100 each period, what will the third payment be?

• $400

• $100

• $200

• $300

How do you calculate the present value of an arithmetic increasing annuity?

• By using a geometric series formula.

• By using a timeline of payments and present value factors.

• By multiplying each payment by a fixed percentage.

• By adding a fixed amount to each payment.

What is the purpose of deriving a closed formula for the present value of an arithmetic increasing annuity?

• To extend the annuity period.

• To simplify the calculation process.

• To increase the payment amount.

• To decrease the interest rate.

How can you find the future value of an arithmetic increasing annuity?

• By adding the interest rate to the present value.

• By subtracting the interest rate from the present value.

• By multiplying the present value formula by 1 plus the interest rate to the power of n.

• By dividing the present value by the interest rate.