I really don't understand annuities.

[Gbob1]

Does anyone else find it really difficult to make sense of how to derive all the formulae? I read the bold black text (core reading?) and I just get really confused! I sort of know how to get to the formulae and I know how to use them but I just don't understand the first stages of it if you know what I mean

Did anyone else have this problem or am I just a bit dim? I honestly feel like memorising all the derivations of the formula and not bother understanding them.

 

[Cardano]

I honestly feel like memorising all the derivations of the formula and not bother understanding them.

If you take this route you might just as well give up now! This is one of the easier exams, you are obviously at the beginning of your exams and these are basics. This may be an opportune moment to consider whether you really want to go through the grief of the preparation for this long set of exams

 

[Gbob1]

If you take this route you might just as well give up now! This is one of the easier exams, you are obviously at the beginning of your exams and these are basics. This may be an opportune moment to consider whether you really want to go through the grief of the preparation for this long set of exams

You're right Cardano, this is definitely an opportune moment to see if I have what it takes to pursue a career as an actuary. I just got a tad stressed out yesterday because nothing was actually going in. I have this at times: I had it at A-levels but I still managed to get through that just fine. But I will keep at it, on with the studying...

 

[Calum]

If you have been taught A-level maths the way some of my contemporaries have been, then it is not your fault you are finding the level of mathematical maturity required a stretch.

It might seem a bit unrelated, but I would recommend getting hold of something like the Open University's material for its M208 pure maths course - it doesn't require anything beyond A-level but will develop your mathematical muscles quite a bit.

 

[John Lee]

Does anyone else find it really difficult to make sense of how to derive all the formulae? I read the bold black text (core reading?) and I just get really confused! I sort of know how to get to the formulae and I know how to use them but I just don't understand the first stages of it if you know what I mean

Yup - that's because it's quite theoretical (although the CT1 exam itself is much more numeric!) - hence the ActEd text we add around it to try and explain!

Bottom line for annuities is that we're simply writing out the expression for the present value of all of the payments and then totalling them up using geometric series from A level (if you can't remember this then grab an A level textbook out of the library - it'll only take an evening's work to sort it)

 

[Cardano]

Calum's suggestion of using OU materials to help learn the higher maths is good IMO. It is how I went about it. There is a thriving secondhand market in OU course materials on ebay and at www.universitybooksearch.co.uk

 

[Oxymoron]

IMHO, the best way to deal with annuities is to:
1) Reduce the number of variables you are dealing with (I prefer sticking to i and n as the only two variable in formulas, as against using d,v,delta etc)
2) Reduce i to the base interval and approach it from there. Eg: If a coupon at the rate of 5% per annum (on $100 nominal) is paid half yearly in arrear for two years and the effective annual rate of 10%/annum - convert this to
i) Effective half yearly rate of 4.8888% (1.1^.5-1)
ii) 4 half year periods with payments of $2.5 each
=> Going by the original formula of [1-(1+i)^-n]/i, the PV is calculated to be $2.5*(1-(1.04888)^-4)/.0488 = $8.89.

Good luck!

 

[Gbob1]

IMHO, the best way to deal with annuities is to:
1) Reduce the number of variables you are dealing with (I prefer sticking to i and n as the only two variable in formulas, as against using d,v,delta etc)
2) Reduce i to the base interval and approach it from there. Eg: If a coupon at the rate of 5% per annum (on $100 nominal) is paid half yearly in arrear for two years and the effective annual rate of 10%/annum - convert this to
i) Effective half yearly rate of 4.8888% (1.1^.5-1)
ii) 4 half year periods with payments of $2.5 each
=> Going by the original formula of [1-(1+i)^-n]/i, the PV is calculated to be $2.5*(1-(1.04888)^-4)/.0488 = $8.89.

Good luck!

Did you mean rate of $5 per annum or was it really 5% per annum?

But I get what you're saying.

Thanks!

*edit* oh 5% on $100 nominal is $5 p/a duh *edit*

 

[Gbob1]

After a few re-reads and practice questions everything begins to make MUCH more sense! I am now finding it easier to understand. I think it was just hard for me to adjust to all the new concepts as they were getting thrown at me, and I expected to grasp all the concepts immediately. This put me under a bit of stress but now that I do get it, it makes chapter 7 much easier too (well the first few pages anyway)!

Thanks everyone!