Annuities and Perpetuities
In this assignment different mortgage rates are discussed and compared to know about the cheapest rate. It was supposed to collect mortgage data for 10 years, 15 years and 30 years but unfortunately 10 years mortgage rate was not available for the mortgage lender companies we have selected. In the next step, these rates are converted into Effective Annual Rates (EAR’s) and then requirements are fulfilled in theoretical terms. Rates in Table

When some mortgage loan is borrowed it have to pay back just like all types of loans. Effective Annual Rate (EAR) is a term used for determining the actual annual rate that borrower would pay on the loan. EAR determine actual loan as nominal values differs due to changing interest rates or compounding values. This rate is annual rate of interest which is equivalent to the nominal rate compounded frequently (Effective Annual rate, 2010). Effective annual rate (EAR) can be calculated by formula given below. Effective Annual Rate= (1+k/m)^m-1

Where
K represents nominal interest rate
M represents compounding frequency (15 years, 30 years)

Table 1 Five Mortgage Lenders calculation
Lender name 10 year mortgage rate (%)15 years mortgage rate (%)Effective Annual Rates (EAR 15 years) (%)30 years mortgage rate (%)Effective Annual Rates (EAR 30 years) (%)Time to Maturity LendingTreeN.A2.502.5294 3.253.3016Fixed

MortgagenewsdailyN.A 2.832.8677 3.503.5599Fixed
ZillowN.A2.612.64203.323.3738Fixed
ChaseN.A2.7502.78563.6253.6892Fixed
BankrateN.A2.842.87803.473.5288Fixed
Three Common Mistakes
Three common mistakes which mostly homebuyers make when they decide for borrowing by looking at quoted mortgage rates are no idea about their credit score, sales contract and services of lawyer. Before deciding about mortgage an investor should be familiar with their credit score if he has low credit score he will have to pay higher so firstly he should increase his...

...Annuities
An annuity is a financial product sold by financial institutions that is designed to accept and grow funds from an individual and then payout a stream of payments to the individual at a later point in time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years. A fixed sum of money paid to someone each year, typically for the rest of their life.Annuities are a popular choice for investors who want to receive a steady income stream in retirement.
This is how an annuity works, you make an investment in the annuity, and it then makes payments to you on a future date or series of dates. The income you receive from an annuity can be doled out monthly, quarterly, annually or even in a lump sum payment. The sizes of your payments are determined by a variety of factors, including the length of your payment period. You can opt to receive payments for the rest of your life, or for a set number of years.
There are two basic types of annuities, a deferred and an immediate annuity. With a deferred annuity, your money is invested for a period of time until you are ready to begin taking withdrawals, typically in retirement. With an immediate annuity you begin to receive payments soon after you make your initial investment. The deferred...

...Basic Formulas:
Present value interest factor of an annuity,
PVIFA(k,n) = [ 1 – ( 1 + k )-n ] / k
Present value interest factor of a perpetuity,
PVIFA(k; ∞) = 1 / k
Future value interest factor of an annuity,
FVIFA(k,n) = [ ( 1 + k )n –1 ] / k
Annuities Due, payments at start of period,
PVIFADue(k,n) = PVIFA(k,n) * ( 1 + k )
FVIFADue(k,n) = FVIFA(k,n) * ( 1 + k )
Where: k is the effective discount rate per payment period and n is the number of payments.
Note: to use these formulas, the payments must be equal and at regular intervals and k cannot vary.
Finding Effective rates:
As mentioned in last week’s tutorial, find the future value of $1 over the given period and subtract off that $1 principal to find out how much interest accumulated over the period.
Example:
Convert 8% with semi-annual compounding to an effective monthly rate. Note that the stated rate really means 4% per six months, so a monthly rate is 1/6 of a period.
k1/12 = ( 1 + k1/2 ) 1/6 – 1 = 0.6558% per month
Quick Derivation, in case you forget your formula sheet.
At a fixed interest rate, if you withdraw all of the interest every period leaving the principal untouched, you can withdraw the same amount per period forever. This is perpetuity. Therefore the present value of a...

...ANNUITY DUE
An annuity for which the periodic payments are made at the beginning of each payment interval. The term of an annuity due begins on the date of the first payment interval after the last payment is made.
FUTURE VALUE OF ANNUITY DUE
1. Using the Annuity Table
* Uses the same table as ordinary annuities but with some modifications.
Example : Ferdie Gonzales deposited P6,000 at the beginning of each month, for 2 years at his credit union. If the interest rate was 12% compounded monthly, what is the future value of Ferdie’s account?
Solution : Interest rate per period and the number of compounding periods are first to be determined. One period is added to the total number of compounding periods.
Interest rate per period = 1% ( 12% / 12 period per year )
Number of compounding periods = 24 ( 2 years x 12 period per year ) plus one period or a total of 25 periods.
From the Table Factor found Table 3, deduct 1.000000 to get the annuity due table factor. Annuity due Table Factor = 27.243200 ( 28.243200 - 1 ).
Future Value = Annuity Payment x Table Factor...

...International Monetary Fund
Headquarters Washington, D.C., USA
Managing Director Dominique Strauss-Kahn
Central Bank of Currency ISO 4217 Code XDR
Base borrowing rate 3.49% for SDRs
Website www.imf.org
History
The International Monetary Fund was conceived in July 1946 during the United Nations Monetary and Financial Conference. The representatives of 45 governments met in the Mount Washington Hotel in the area of Bretton Woods, New Hampshire, United States, with the delegates to the conference agreeing on a framework for international economic cooperation. The IMF was formally organized on December 27, 1945, when the first 29 countries signed its Articles of Agreement.
The statutory purposes of the IMF today are the same as when they were formulated in 1943. The International Monetary Fund (IMF) is the international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rate and the balance of payments. It is an organization formed with a stated objective of stabilizing international exchange rates and facilitating development. It also offers highly leveraged loans, mainly to poorer countries. Its headquarters are in Washington, D.C., United States .
The IMF's influence in the global economy steadily increased as it accumulated more members. The number of IMF member countries has more than quadrupled from the 44 states involved in...

...A Life Annuities Podcast
I recently made a podcast with Monty Loree who runs the Canadian Money Advisor site at http://www.canadian-money-advisor.ca/podcast-summary.html.
A lot of the conversation was about life annuities and their growing importance to the investing public.And the question arose;why life annuities?
A growing number of people are fed up with the stock market and its volatile behaviour which makes everyone anxious.
It appears about 99% of mutual and segregated fundholders were left in their sinking funds as the Dow fell from 14,000 approx to 6,500 approx in March 2009.All of these clients could have been moved into money market funds or daily savings accounts where they would have made little or no money or even lost a very little,but at least their capital would have been preserved.But no,they were left to rot and now face a market which has struggled back about 50% or so.
So do they stay in and hope to recover more? Or do they bail and head for security in a life annuity? With a life annuity the income is known,it last a lifetime (literally ) and you don,t care if the market falls into a black hole as it probably will.And that is why the public are turning to life annuities.
POSTED BY IVON T. HUGHES AT 2:15 PM 15 COMMENTS
THURSDAY, NOVEMBER 19, 2009
Your Term Life Insurance Exam
When you purchase a life insurance policy, you may be required to take a...

...
RULE AGAINST PERPETUITY
INTRODUCTION
The rules of law affecting perpetuities are based upon considerations of public policy. Although the principle of private ownership requires that an owner of property is to have power to dispose as he thinks fit, either during life or on death, of his whole interest in the property he owns, public policy requires that the power should not be abused. Accordingly from early times, the law has discouraged dispositions of property, which either impose restrictions on future alienations of that property, or fetter to an unreasonable extent its future devolution or enjoyment.
The rule against perpetuity has been dealt with in the Section 14 of the Transfer of Property Act, 1882 (henceforth referred to as ―the Act‖). Sections 10 to 17 of the Transfer of Property Act have been enacted to encourage free alienation and circulation of property. The object of the rule against perpetuity as embodied in the Section 14 is to restrain the creation of future conditional interest in the property. It concerns rights of property only and does not concern the making of contracts which do not create the rights of property. It does not therefore apply to personal contracts which in effect do not create interest in any property. An ordinary contract for purchase entered into after the Transfer of Property does not by itself create any interest in land but the obligation can be...

...8% 45
4
)
P 1.02
20
3800
P
$2557.29 $3800 in 5 years
20
(1.02)
14.1 Amount (Future Value) of an Annuity
• Annuity – a sequence of equal payments
• Payment period – time between payments
• “Ordinary annuity” – payments at the end of the
pay period
• “Annuity due” - payments at the beginning of the
pay period
• “Simple annuity” – payment dates match the
compounding period (all our annuities are simple)
14.1 Amount (Future Value) of an Annuity
• Amount of an annuity - S (future value) of n
payments of R dollars for n periods at a rate of i
per period:
1 i n
S R
i
1
R sn i
• Use you calculator instead of using appendix D.
14.1 Amount (Future Value) of an Annuity
• Example: Sharon Stone deposits $2000 at the end
of each year in an account earning 10%
compounded annually. Determine how much
money she has after 25 years. How much interest
did she earn?
1 .10 25 1
9.834706
S 2000
2000
.10
.10
$196,694.12
I 196,694.12 (25 2000) $146,694.12
14.1 Amount (Future Value) of an Annuity
• Example: For S = $50,000, i = 7% compounded
semi-annually with payments made at the end of
each semi-annual period for 8 years, find the
periodic payment (R)
1 72% 28 1
1.03516
$50,000 R
R
7%
0.035
2
50,000 20.97103R
50000
R
$2384.24
20.97103
1
14.1...

...in order to generate my salary which is based on a commission or fee based on various investment/financial services. The first main regulatory agency is the FINRA. The FINRA stands for the financial industry regulatory authority. In order to become a fully licensed financial professional, this approved, self-regulatory organization, offers several license exams for financial professionals to take (Cussen, Mark P, "Breaking Down Financial Securities Licenses”). The first license that is essential for a financial advisor is the Series 6 exam. This excerpt from an article written by financial professional Mark P. Cussen, outlines the Series 6 exam, “It allows its holders to sell "packaged" investment products such as mutual funds, variable annuities and unit investment trusts…this license is also required for insurance agents that sell variable products of any kind, because securities constitute the underlying investments within those products” (Cussen, Mark P, "Breaking Down Financial Securities Licenses”). The second major example also provided by the FINRA, is the Series 7 license. This license essentially allows all general investments to be sold. This includes equities, fixed income, and options (put and call). The only topics it doesn’t cover are selling/collecting commission on derivative based securities (covered in Series 3 exam). After acquiring the Series 6 and 7 exams there is one last essential license to pass. The last exam is given by the NASAA...

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