Skip to main content
Mathematics LibreTexts

12.0: Introduction

  • Page ID
    38379
  • \( \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \) \( \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} \)\(\newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\) \( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\) \( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\) \( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\) \( \newcommand{\Span}{\mathrm{span}}\) \(\newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\) \( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\) \( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\) \( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\) \( \newcommand{\Span}{\mathrm{span}}\)\(\newcommand{\AA}{\unicode[.8,0]{x212B}}\)

    It has been a hectic day at work. This morning your newly leased computer equipment arrived and your manager reminded you that as soon as it is set up, the debt obligation associated with the computer lease must be recorded in the accounting books. As well, a few of your corporate partners had contributed toward a new scholarship program for your employees and you must determine exactly how much the scholarship can afford to pay out from its interest earnings without touching the principal. If that were not enough, your company's pension plan is under review. Your pension earners' monthly income payments need to be increased based on the rate of inflation. On a related note, some of your employees want to participate in a special component of your RRSP benefits program in which they invest single payments today and receive future benefit payments down the road. You must help them figure out how much money they must deposit today to participate in this program.

    What does this example illustrate? A majority of businesses lease computers and equipment for tax benefit purposes along with the ability to regularly upgrade equipment to meet rapid technological changes. Whether you are the business selling the leased products or acquiring them, you must understand how leases work. Company and government pension plans such as the Canada Pension Plan and Old Age Security regularly increase their payments to match inflation. Many companies, organizations, and even not-for-profit enterprises beyond just the educational sector set up scholarship programs for employees and their families. These scholarships are designed to provide benefits today and endlessly into the future.

    On the personal side, you must arrange for the retirement income that you will eventually withdraw from your RRSP savings to increase regularly to match inflation so that your purchasing power remains the same throughout all stages of retirement. On a similar note, most contributions to RRSPs are regularly increased as annual income rises throughout a career. In addition, as a Canadian you have access to Canada Pension Plan and Old Age Security benefits, which are constantly increasing annuity payments available to you in your retirement years. You also save for a lot of events and big purchases in your lives; many consumers defer the purchase of these items until cash is available.

    In this chapter, you will explore four specific situations relating to annuities: deferred annuities, constant growth annuities, perpetuities, and leases. Then you will practise with some personally relevant applications in the form of procedures for purchasing your vehicle at the lowest cost and for basic RRSP planning.

    Contributors and Attributions


    12.0: Introduction is shared under a not declared license and was authored, remixed, and/or curated by LibreTexts.

    • Was this article helpful?