Key Idea: An annuity is a series of equal, regular payments. Topic 1.7 is entirely GDC-based — you use the TVM (Time Value of Money) solver on your GDC. You enter what you know and solve for the unknown. The two main scenarios are: saving (money in) and borrowing (money out).
Three things IB tests on this topic:
🖩 TVM solver — what each field means
Tip: Think of signs from your perspective: Savings: You pay in monthly (PMT = negative), you receive the total at the end (FV = positive). Loan: You receive the loan upfront (PV = positive), you pay monthly (PMT = negative), you owe nothing at end (FV = 0). If FV comes out negative when you expected positive — flip the sign of PV or PMT.
✏️ Worked examples
Savings annuity — find FV
Save $200/month for 5 years at 4% annual interest compounded monthly.
Step by step:
N = 5 × 12 = 60, I% = 4, PV = 0, PMT = −200, P/Y = 12, C/Y = 12
Solve for FV
GDC → FV = $13 248.84
Final answer:
FV = $13 248.84
Loan — find monthly payment
Borrow $10 000 at 6% annual interest, repaid monthly over 3 years.
Step by step:
N = 36, I% = 6, PV = 10 000, FV = 0, P/Y = 12, C/Y = 12
Solve for PMT
GDC → PMT = −$304.22 (negative = paying out)
Final answer:
$304.22 per month
Loan — find total interest
Same loan above. Find the total interest paid over the full term.
Step by step:
Total paid = |PMT| × N = 304.22 × 36 = $10 951.92
Interest = total paid − principal = 10 951.92 − 10 000
Total interest = $951.92
Final answer:
$951.92 in interest
Always list TVM inputs — write down N, I%, PV, PMT, FV, P/Y, C/Y before stating your answer. This is your working. No inputs shown = no method marks. Currency: Round final answers to 2 decimal places unless told otherwise. Common question types: monthly payment, number of months to repay, total interest paid, comparing two loan options. This topic is Paper 2 only — you will always have your GDC.