Annuity Due

Annuity Due
 Present Value of Annuity Due
An annuity due is an annuity paid at the
beginning of the payment interval. The present
value of an annuity due is its value on the first
payment date. It is the present value of an
ordinary annuity with (n − 1) payments plus the
first payment. This leads to the formula:

Annuity Due
 Amount of Annuity Due
The amount of an annuity due is its value one
period after the payment. It is the amount of an
ordinary annuity with (n + 1) payments minus
one payment. This leads to the formula:

Annuity Due
The monthly rent of an apartment is P15,000
payable at the beginning of each month. If
money is worth 15% compounded monthly,
what is the cash equivalent of 5 years rent?

1 (1 0.15/12)(125) 

 15000 (1 0.15/12)
 0.15/12 
 P638,400.36

Annuity Due
If P10,000 is deposited in a fund at the
beginning of each 3 months for 8 years and the
money is invested at 5% compounded quarterly,
how much is in the fund at the end of 8 years?


S  R (1  i ) n
1
(1  i)
 i 
(1 0.05/ 4)(48) 1
 10000 (1 0.05/ 4)
 0.05/ 4 
 P395,385.71

Annuity Due
If P10,000 is deposited in a fund at the
beginning of each 3 months for 8 years and the
money is invested at 5% compounded quarterly,
how much is in the fund just after the last
deposit?

S(1 0.05/ 4)1

 P380,504.41
Annuity Due
1. Six years from now, Ali will need P100,000. How much
must he invest in a fund at the beginning of every year
starting now to accumulate to this amount if the fund earns
at 9% compounded annually? P12194.48

2. A digital camera can be bought on 12 monthly payments of

P1000 each, the first of which is due on the date of
purchase. Find the cash price if money is worth 18%
converted monthly.
P11071.12

3. A trust fund is being formed by depositing P25,000 at the

beginning of every 3 months for 10 years. If the fund earns
12% compounded quarterly , how much will the fund grow
a. in 10 years?
P1,941,582.44;
b. just after the last deposit?
P1,885,031.49
Annuity Due
DEFERRED ANNUITY

Annuity Due
A deferred annuity is an annuity where the first
payment does not coincide with the first
interest period. It is put off to a later date.

The value of the deferred annuity at the end of

the term in the amount or S. This is the same as
the amount of the ordinary annuity. The value
of the deferred annuity at the beginning of its
term is the present value or A. If A is discounted
to the present time, the present value of the
deferred annuity is obtained.
Annuity Due
Formulas for the present value Adef and periodic
payment R of a deferred annuity:
1 (1 i)n 
Adef  R (1  i ) d

 i 

where d is the number of deferment periods. Denote

the number of years payment is deferred by td and we
have d = mtd.
If the annuity is deferred by d periods, the first
payment is then due at the end of the (d+1)th period.
Annuity Due
Find the present value of a Php120,000 annuity
payable every year for 10 years but deferred 3
years. Money is worth 8% effective.

1 (1 i) n

Adef  R (1 i) d

 i 
11.08(101)  (31)
 120,000 (1.08)
 .08 
Php639,201.47

Annuity Due
To start an IT business, Elmer and Erwin
borrowed Php4.5M with interest at 10%
compounded quarterly. They will repay the
debt by making 12 equal quarterly payments.
If the first payment is due at the end of 18
months, how much is the quarterly payment?

Adefi (4,500,000)(.025)
R 
[1 (1 i) ](1 i)
n d 12
[11.025 ](1.025) (15 /124)

Php496,339.81
Annuity Due
If money is worth 12% compounded quarterly,
find the present value of 28 quarterly
payments of Php18,000 each, the first of
which is due at the beginning of the 4th year.

1 (1 i)n 

Adef  R (1  i ) d

 i 
11.0328 
 18,000 ( 1 .03) 11

 .03 
Php244,000.64
Annuity Due
 EXERCISES
• Find the present value of a P50,000 annuity payable each three
months for ten years but deferred for five years. Money is worth
12% compounded quarterly.
• On the birth of a child, the father wants to deposit a sum in a
savings account. He intends to provide his daughter P50,000
every month for four years, starting on her 18th birthday. If the
savings bank pays 12% compounded monthly, how much should
the father deposit?
• A man borrowed P300,000 from a finance company that charges
interest at 16% compounded semi-annually. He promised to pay
off the loan in twelve semi-annual payments. The first payment
is to be made at the end of two years. Find his semi-annual
payment.

Annuity Due