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Just Answer My Questions
11-26-2002, 11:45 AM
Could anyone give me the formula for an annuity payable monthly but indexed annually (or give me a page number in Theory of INterest)? I'm trying to do it with mortality, but I don't know if there's a 'quick and dirty' formual for it or if I have to write out it completely out.
THANK YOU :-?

Avi
11-26-2002, 02:17 PM
Easiest and most logical thing to do is to find the monthly equivalent effective rate. Then your annuity has payments and interest indexed at the same time, and it's a piece of cake.

Just Answer My Questions
11-26-2002, 03:17 PM
That's if the payments are indexed monthly, but I want them indexed annually (ie: 12 level payments, then the index for the next 12 level payments).
THanks!

Avi
11-26-2002, 03:40 PM
I'm not sure I understand you then. You have two periods. The compoundment period and the payment period. Instead of memorizing formulas, the simplest thing to do is to transform one to the other (either by finding equivalent rates, or equivalent payments) and solving it as a simple annuity. What am I missing?

oedipus rex
11-27-2002, 01:34 AM
maybe you should ask this in the general actuarial section, maybe people who have passed more exams could help, since I'm at a loss as well...(sorry) :viola:

Gandalf
11-27-2002, 09:44 AM
What do you mean by "indexed annually"? You seem to be suggesting that payments change annually. The answer will depend on whether they are increasing annually by a constant amount or a constant percentage. (If the change is not one of those two, there's little hope for a simple formula.)

The general approach in either case is to first convert each set of monthly payments to a single value (multiply the amount of one payment by 12 times a one year annuity payable monthly), then multiply that by an annual annuity with the right pattern for benefit changes.