I’m now working on writing mathematics problems for the teacher’s resource appendix of a high-school mathematics textbook. The chapter I’m currently working on is “Solving Financial Problems Involving Exponential Functions.” Today I wrote problems about determining the present value and future value of regular annuities.

For example, let’s say that you’ll receive yearly payments of $1000 for the next 10 years from an annuity. It’s useful to know how much that annuity is worth today—that’s the present value. You might be tempted to say it’s worth $10,000, but you also have to take into account the fact that if you had all the money today, you could earn interest on it. Therefore, it’s actually worth less than $10,000 today.

Also, let’s say that you’ll make yearly payments of $1000 into an annuity for the next 10 years. It’s useful to know how much the annuity will be worth in 10 years—that’s the future value. You might be tempted to say it will be worth $10,000, but you also have to take into account that the annuity will pay interest. Therefore, it will actually be worth more than $10,000 in 10 years. Fun stuff, isn’t it?

Tags: Math, Mathematics