Part (8) MS

From page (13) to page (22)

First Year Mathematics Dr. Moustafa

Salem
Finance
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 Amount of annuities

Annuity:
A regular sum of money paid yearly, monthly or each equal
intervals of time. So that: Annuity is a fixed sum of money paid
periodically (monthly, every two months, or every three months,
and so on…), under stated conditions.

Types of annuities:
1- Ordinary annuities "O/A":
When the annuities are due or made at the end of the payment
intervals

𝑨𝟏 𝑨𝟐 𝑨𝟑 𝑨𝒏

2- Due annuities "D/A":

When the annuities are due or made at the beginning of the
payment intervals
𝑨𝟏 𝑨𝟐 𝑨𝟑 𝑨𝒏

Computing simple amount of annuities:

Let:
S: the amount of the annuity paid periodically.
A: the value sum of annuity
T: the intervals of time successively ( )
So:
∑ ∑

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 ( )
Where:
A: the value sum of annuity
: number of annuities
: period of the first annuity
: period of the last annuity
R: rate of interest (given annually)

Example (1)
A person deposited a sum of 2000 dollars at the end of each
month of the year 2004 at rate of Return 12% find:
The credit of the person at the end of 2004.
Answer:
𝟏𝟏

𝟐𝟎𝟎𝟎 𝟐𝟎𝟎𝟎 𝟐𝟎𝟎𝟎 𝟐𝟎𝟎𝟎

Not that:
= 11 mon =0
= $2000 monthly.
N=12 annuities R=12% annually.
The first annuities due at the end of each year. There fore:
the annuity is Ordinary.
The amount of the annuities:

( )

( )

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Example (2)

In example (1) assuming that the first payment due at the

beginning of each month.
Find: the credit of the person at the end of year 2004.
Answer:
Since: The first annuity due at the beginning of each year
so: The annuity is due.

𝟏𝟐

𝟐𝟎𝟎𝟎 𝟐𝟎𝟎𝟎 𝟐𝟎𝟎𝟎 𝟐𝟎𝟎𝟎 𝟐𝟎𝟎𝟎

𝟏

( )

( )

Not that: The amount of due annuities is bigger than the

amount of Ordinary annuities

Example (3)

Find the amount of an annuity of 2000 dollars paid at the

beginning and middle of every month, for 2 year at rate
interest 15%
Answer:
A = 2000 dollars R = 15%,
n = 48 annuities (2×2×12)
or :
Since: The first payment at the beginning of each interval.
so: The annuity is due.

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 𝟐𝟒

𝟐𝟎𝟎𝟎 𝟐𝟎𝟎𝟎 𝟐𝟎𝟎𝟎 𝟐𝟎𝟎𝟎 𝟐𝟎𝟎𝟎

𝟎𝟓

( )

( )

Example (4)

Mahmoud deposited in the bank a certain sum of money at

the beginning of every two months for two year at the rate of
interest =11%. if his deposit at the end of the year was
$52840.
Find the value of each annuity.
Answer:

𝟐𝟒

𝑨 𝑨 𝑨 𝑨 𝑨
𝟐

( )

( )

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 Periodic Interest
Value of each periodic interest
Where:
P: principal
R: interest rate
T: equal time intervals

Example (5)

Adel borrowed from Mahmoud $ 100000 for one year and

agreed on paying the interest quarterly at a simple interest
rate of 6% annually
Find:
a- the value of each periodic interest.
b- Total value of periodic interest for the whole period.
c- The sum paid by Adel for Mahmoud.
Answer:

a) Value of each periodic interest:

b) Total value of periodic interest

= 1500 × 4 = 6000
c) The sum paid by Adel for Mahmoud
= value of loan + Total value of periodic interest
=100000+ 6000 = 106000

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 Delayed Interest of periodic Interest:

Sometimes, the borrower can't pay some or all the

periodic interests in their determined time, so we
charge him by a delay interest for each unpaid Periodic
interest.
we can conclude that the borrower may pay the
following:
1- periodic Interests (if it is paid on its determined
dates).
2- Delay periodic Interests (if all or some of them were
delayed).
3- Delayed Interest of periodic Interest
4- Initial or original loan
5- Delayed Interest of the initial loan.

Example (6)

A trader borrowed from a bank $ 4000 for 2 years and

agreed on paying the periodic interests of that loan every
two months, at a simple interest rate at 6% annually. He
paid three periodic interests on their time & then stopped
from paying the rest.
Find what the trader should pay to the bank at the end of the
loan period if the agreed delay rate was 8% annually.

Answer

𝟏 𝟐 𝟑 𝟒 𝟓 𝟔 𝟕 𝟖 𝟗 𝟏𝟎 𝟏𝟏 𝟏𝟐

3:
 P = 4000 T= 2 years
length of periodic Interest or payment interval = 2 months.
periodic Interest Rate (r) = 6% annually.
 Number of periodic Interests = periodic

 Interest value of each periodic Interest:

 number of periodic interests paid in time = 3

 number of delayed periodic interests = 9
 sum of delayed periodic interests = 9 x 40 = 360
 Delayed interest of delayed periodic interests:

( )

( )
Then, by the end of the loan period, the trader will have paid:

1. Interests paid in time 120

2. + delayed periodic Interests 360
3. + delay Interests of periodic interests 19.2
4. + value of loan 4000
Total 4499.2

Example (7)

Adam borrowed from Aly $ 12000 for 3 years and agreed on

paying the interest of the loan by payments every three
months at simple interest rate of 12% annually, Adam paid
the first year periodic interest in time and then stopped from
paying the remaining, and agreed on paying the loan & its
delayed periodic interest together after 4 months from the

3;
 end of the loan. Find the sum paid by Adam at the end of the
delay period if the delay interest rate was 13% annually.

Answer
𝟐𝟓

𝟒 𝒎𝒐𝒏
𝟏 𝟐 𝟑 𝟒 𝟓 𝟔 𝟕 𝟖 𝟗 𝟏𝟎 𝟏𝟏 𝟏𝟐

 Value of each periodic payment:

 Value of delayed periodic interests =

 Delay interest of the delayed periodic interest:

( )

( )
 delay interest on loan:

 The sum due on the borrower in the end of period is:

1. The loan 12000

2. + delayed periodic Interests 2880
3. + delay Interests of delayed periodic interests 452.4
4. + delay interest on loan 520
Total 15852.4

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 PRESENT VALUE
P t days at rate r S Future value
Maturity value
Present value Amount
Principal Due value
Cash price

If is the future value formula, then

is the present value formula

Note
Don’t use the simple interest formula when moving money on the
time line. Always use the future value or the present value formula.

Example (8)

A business man borrowed from a certain amount of money for

fifteen months. What is the value of the loan if its sum by the
end of its period was $ 5372 if the simple interest rate used by
the bank was 6% annually?
Answer

Example (9)
A trader man borrowed $ 3700 from a bank and after a period of time he
wanted to settle his debt he fin it or sum of amount of $ 3977.5 Find the
period of time for the loan if the bank used a simple interest rate of 7.5%
annually.
Answer

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 ( ) ( )

Example (10)
An individual invested $4800 in a bank for 9 months; he found
his debt at the end of its period $ 5232. Find the simple interest rate used
by the bank.
Answer

( ) ( )

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