University of Science and Technology of Southern Philippines

Alubijid | Cagayan de Oro | Claveria | Jasaan | Oroquieta| Panaon

Claro M Recto Avenue, Lapasan, Cagayan de Oro City
Tel. Nos (088) 856-1738/856-1739 Telefax (088) 856-4696
College of Science and Technology Education

Mathematics of Finance (MA 325)

Problem Set 3.1

Name: Kim Andrea N. Soriano Section: 3A

Course and Year: BS Mathematics Education 3rd Year
Date Completed: March 6,2021
Date Uploaded: March 7, 2021
Note (If applicable):
Follow this filename pattern for your submissions:
Section_SG1-Annuity
Deadline: Submit on or before March 7, 2021

Chapter 3. INTRODUCTION TO ANNUITIES

At the end of the lesson, students are expected to:

1. define what is annuity;

2. differentiate the different types of annuities;
3. identify the terms to be used involving annuity; and
4. calculate the present and future values of annuities.

I. Direction: Identify the terms described in the sentences below. Write your answer/s in the
blank provided before each item. Answers should have RED font color. (10 points)

Life Insurance1. It is a contract between an insurer and a policyholder that provides

financial protection against the risk of dying prematurely.

Lifetime Annuity2. This is a type of annuity that provides income for the remaining life of a

person.

1
 University of Science and Technology of Southern Philippines
Alubijid | Cagayan de Oro | Claveria | Jasaan | Oroquieta| Panaon
Claro M Recto Avenue, Lapasan, Cagayan de Oro City
Tel. Nos (088) 856-1738/856-1739 Telefax (088) 856-4696
College of Science and Technology Education

Annuity3. A financial product that provides certain cash flows at equal time intervals

created by financial institutions, primarily life insurance companies, to provide regular

income.

Fixed Period Annuity4. This is a type of annuity that pays an income for a specified period of

time. The amount that is paid doesn’t depend on the age of the person who buys the

annuity; the payments depend instead on the amount paid into the annuity.

Flexible Premium Annuity5. It is an annuity that is intended to be funded by a series of

payments.

Single Premium Annuity6. It is an annuity funded by a single payment.

Fixed Annuities7. In this type of annuity, the insurance company guarantees the principal

and a minimum rate of interest. As long as the insurance company is financially sound, the

money you have in a fixed annuity will grow and will not drop in value.

𝟏−(𝟏+𝒊)−𝒏
𝑷𝑽𝑨𝒏𝒏𝒖𝒊𝒕𝒚 𝑫𝒖𝒆 = 𝑪 [ 𝒊
] (𝟏 + 𝒊)8. Give the formula in finding the present value of annuity

due.

𝟏−(𝟏+𝒊)−𝒏
𝑷𝑽𝑶𝒓𝒅𝒊𝒏𝒂𝒓𝒚 𝑨𝒏𝒏𝒖𝒊𝒕𝒚 = 𝑪 [ 𝒊
]9. Give the formula in finding the present value of ordinary

annuity.

Ordinary Annuity10. It is one of the basic types of annuities which require payments at the

end of each period.

II. Solve the following. Show COMPLETE SOLUTION. Answers should have a RED font color. (10
points each item)

1. Find the present value of ordinary annuity.

Payments of Php890 each year for 16 years at 6% compounded annually.

2
 University of Science and Technology of Southern Philippines
Alubijid | Cagayan de Oro | Claveria | Jasaan | Oroquieta| Panaon
Claro M Recto Avenue, Lapasan, Cagayan de Oro City
Tel. Nos (088) 856-1738/856-1739 Telefax (088) 856-4696
College of Science and Technology Education

Compounding Formula Accumulated Amount Interest Earned

Period

𝑷𝑽𝑶𝒓𝒅𝒊𝒏𝒂𝒓𝒚 𝑨𝒏𝒏𝒖𝒊𝒕𝒚 1 − (1 + 0.06)−16 =8994.25-890

= 890 [ ]
Annually 0.06
𝟏 − (𝟏 + 𝒊)−𝒏 =Php 8104.25
= 𝑪[ ]
𝒊 =Php 8994.25

2. Find the future value of annuity due.

What is the future value of a three year annuity due with a cash flow of Php100 per
year, earning 6%?

Compounding Formula Accumulated Amount Interest Earned

Period

𝑭𝑽𝑨𝒏𝒏𝒖𝒊𝒕𝒚 𝑫𝒖𝒆 (𝟏 + 𝟎. 𝟎𝟔)𝟑 − 𝟏 =337.46-100

(𝟏 + 𝒊)𝒏 − 𝟏 = 𝟏𝟎𝟎 [ ]
𝟎. 𝟎𝟔 =Php 237.46
Per year(Annually) = 𝑪[ ]
𝒊 (𝟏 + 𝟎. 𝟎𝟔)
(𝟏 + 𝒊) =Php 337.46