Annuity is a type of repayment, which is constant over the time. Th annuity payment consists of two parts – the *interest* and the *amortization*. The ratio of the interest to amortization is gradually decreasing.

To calculate the annuity we use the following formula:

S – annuity repayment

U – borrowed sum of money

q – q = 1 + interest_rate_per_time_period

n – number of time periods (time)

U – borrowed sum of money

q – q = 1 + interest_rate_per_time_period

n – number of time periods (time)

## Example

We borrow 200 000$ in the bank for 5 years, payable monthly, with interest rate per year. Find the monthly annuity payment.

Number of periods (months):

We pay per month (we have to divide the annual interest rate):

We substitute into the formula:

We pay per month (we have to divide the annual interest rate):

We substitute into the formula:

We will pay 4758$ per month.