Annuities, a note on price theory
While researching my articles on the UK 2014 budget, I wanted to write a quick note on Annuity prices, yields and interest rates, I came across nothing easy to find, but did come across these,
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There is a companion wiki article on the UK 2014 Budget.
A loan involves a bank giving someone a wedge of cash in exchange for an agreed periodic payment.
An annuity involves a bank giving someone an agreed periodic payment in exchange for a wedge of cash.
They are the same thing! So we should be able to price them the same way.