Module 5 Topic 1

Annuity Due – paid at the beginning of the payment interval. House rent is an example of
annuity due. It means that you pay the rental in advance before you use the space or the
house.

Terminologies
1. Present value of an annuity due – the value at the first payment date. Denoted by capital
letter A with a bar Á. This read as A bar
2. Amount of an ordinary annuity – its value one period after the last payment. Denoted by
capital letter S with a bar Ś. This is read as S bar.

Formula:
1−( 1+i )−n
Present value Á=R+ R ⌈ ⌉
i
Amount
(1+i )n−1
Ś=R ⌈ ⌉−R
i
Periodic payment of A bar
Á
R= −n
1−( 1+i )
1+
i
Periodic payment of S bar
Ś
R= n
( 1+ i ) −1
−1
i

Sample Problems
1. Find the present value and the annuity due amount pf P5,500 payable semi-annually for 9 ½
years. Money is worth 7% compounded semi-annually.
Given:
R = 5,500
j = 7%
m = semi-annual or 2
i = 7%/2 or 3.5% or .035
t = 9 ½ years or 9.5 years
n = t x m or 9.5 x 2 = 19

Find the present value

1−( 1+i )−n

Á=R+ R ⌈ ⌉
i
 1−( 1+.035 )−19
Á=5,500+5,500 ⌈ ⌉
.035

1−( 1 .035 )−19

Á=5,500+5,500 ⌈ ⌉
.035

1−( .52015569 )
Á=5,500+5,500 ⌈ ⌉
.035

.479844309
Á=5,500+5,500 ⌈ ⌉
.035

Á=5,500+5,500 ⌈ 13.70983742⌉

Á=5,500+75,404.1058

Á=80,904.11

Find the amount of annuity due

(1+i )n−1
Ś=R ⌈ ⌉−R
i

(1+.035 )19−1
Ś=5,500 ⌈ ⌉−5,500
.035

(1 .035 )19−1
Ś=5,500 ⌈ ⌉ −5,50 0
.035

(1.922501317 )−1
Ś=5,500 ⌈ ⌉−5,50 0
.035

(.922501317 )
Ś=5,500 ⌈ ⌉−5,50 0
.035

Ś=5,500 ⌈ 26.3571805 ⌉−5,50 0

Ś=144,964.4927−5,50 0

Ś=139,464.49
2. How much must be deposited at the beginning of every 3 months in a fund giving 12%
compounded quarterly in order to have P300,000 in 5 years?
Given:
Ś = P300,000
j = 12%
m = quarterly or 4
i = 12%/4 or 3% or .03
t = 5 years
n = t x m or 5 x 4 = 20

How much must be deposited quarterly?

Ś
R= n
( 1+ i ) −1
−1
i

300,000
R=
( 1+ .03 )20−1
−1
.03

300,000
R=
( 1.03 )20−1
−1
.03

300,000
R=
( 1.806111235 )−1
−1
.03

300,000
R=
.806111235
−1
.03

300,000
R=
26.87037449−1

300,000
R=
25.87037449

R=11,164.71