**Annuities** are the **periodical payments** that the **borrower must pay** to the lender for the bond.

**Scenario**: Your lemonade stand is doing well, and you want to expand your capital to produce more lemonade. In order to do so, you take out a 5-year bond from your local bank for $1,000 at a 5% stated annual interest rate.

We're given the bond amount here...

**Scenario**: Your lemonade stand is doing well, and you want to expand your capital to produce more lemonade. In order to do so, you take out a 5-year bond from your local bank for $1,000 at a 5% stated annual interest rate.

...and told that it has a "stated" 5% annual interest rate.

**Scenario**: Your lemonade stand is doing well, and you want to expand your capital to produce more lemonade. In order to do so, you take out a 5-year bond from your local bank for $1,000 at a 5% stated annual interest rate.

What this means is that to compute the annuities (a.k.a. interest payments) for each of the 5 years we hold the bond...

**Scenario**: Your lemonade stand is doing well, and you want to expand your capital to produce more lemonade. In order to do so, you take out a 5-year bond from your local bank for $1,000 at a 5% stated annual interest rate.

...we must do the following calculation...

**Annuity** = **Face Amount** x **Stated Annual Interest Rate**

**Annuity** = $1,000 x 5%

**Annuity** = $50

...resulting in annuity payments of $50 for each of the 5 years!

**Annuity** = **Face Amount** x **Stated Annual Interest Rate**

**Annuity** = $1,000 x 5%

**Annuity** = $50

This means that each year, you owe the local bank $50 in an annuity payment!