Derivation of Annuity Formulas - Cengage（年金公式的推导Cengage）.pdf

W E B E X T E N S I O N 28A Derivation of Annuity Formulas Following are derivations for annuity formulas. It is actually easier to start with the formula for a perpetuity. First, consider the following geometric progression, where A is a positive constant that is less than 1, and X is the sum of the geometric progression: q X = a At (28A-1) t = 1 At first blush, it might seem that X must equal infinity, since the sum goes to infinity. But notice that as t gets large, the term At gets very small, because A is less 1 than 1. For example, suppose that A is equal to ⁄2 . Then the sum is X = 12 + 14 + 1 8 + 1 16 + Á Notice that as we continue to add terms, X approaches but never exceeds 1. Perhaps from an algebra or calculus course you recall that the sum of a geometric progression actually has a closed-form solution: q A