Annuity

A series of equal payments at regular intervals. CAPS Grade 12 definition, worked NSC example and related financial maths practice.

A series of equal payments at regular intervals.

Definition

An annuity is a sequence of equal payments made at regular intervals. Future value annuities model savings and sinking funds; present value annuities model loans, bonds and vehicle finance.

Worked example

Saving R1 000 per month at 8% p.a. compounded monthly for 5 years gives F = 1000[(1 + 0,08/12)⁶⁰ − 1]/(0,08/12) ≈ R73 476,86.

Where it appears in the exam

Paper 1 finance questions ask for loan repayments, an outstanding balance, the number of payments or a savings target, using the future and present value formulas.

Step-by-step method

  1. Decide whether money is being saved (future value) or borrowed (present value).
  2. Find i per period and the number of payments n.
  3. Substitute into F = x[(1 + i)ⁿ − 1]/i or P = x[1 − (1 + i)⁻ⁿ]/i.
  4. Solve for the unknown.

Common mistake

Using the future value formula for a loan, which needs the present value formula.

Related financial maths terms

Frequently asked questions

What does annuity mean in Grade 12 Maths?

An annuity is a sequence of equal payments made at regular intervals. Future value annuities model savings and sinking funds; present value annuities model loans, bonds and vehicle finance.

Which NSC paper tests annuity?

Annuity belongs to the Financial maths section of CAPS Grade 12 Mathematics, which is examined in Paper 1.

How do I practise questions involving annuity?

Snap a question that uses annuity into the Snap&Learn AI solver, or work through the financial maths topic guide and NSC past papers.

Snap&Learn gives South African Matric learners instant, CAPS-aligned, step-by-step Mathematics solutions. Snap or upload a question and the AI shows every method mark the way the NSC memo awards them. Your first three AI solutions are free.