11

General
Mathematics
Quarter 2 – Module 3
Deferred Annuities
General Mathematics – Grade 11
Alternative Delivery Mode
Quarter 2 – Module 3: Deferred Annuities

First Edition, 2020

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EPS, Mathematics

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 Lesson
Deferred Annuities
1

Learning Competency: Calculates the present value and period of deferral of a

deferred annuity (MIIGM-IId-3)

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

● define deferred annuity;

● find the deferral period; and

● calculates the present value and of a deferred annuity.

What is it

Deferred Annuity – it is an annuity where the payment is not made at the start nor at
the end of the first payment interval. It is an annuity which payments are given at a
later time. Generally, the term “defer” means “to delay”.
- It is an annuity that does not begin until a given time interval has
passed
Period of Deferral – time between the purchase of an annuity and the start of the
payments for the deferred annuity

Example 1:
Find the period of deferral in the deferred annuity.

1. Monthly payments of P50,000 for 3 years that will start 8 months from now.
Solution: The first payment is at 8. The period of deferral is from time 0 to 7, which is
equivalent to 7 periods or 7 months.

2. Annual payments of P2,500 for 24 years that will start 12 years from now.
Solution: The first payment is at time 12. The period of deferral is from time 0 to 11,
which is equivalent to 11 periods or 11 years.

What’s More

Directions. Find the period of deferral

1. Annual payments of P8,000 for 12 years that will start 5 years from now
2. Quarterly payments of P 5,000 for 8 years that will start two years from now
3. Annual payments of P13,500 for 20 years that will start 10 years from now
4. A certain fund is to be established today in order to pay for the P5,000 worth of
monthly rent for a commercial space. The payments for rent will start next year and
the fund must be sufficient to pay for the monthly rental for 2 years, the amount that
must be deposited today is P114,046.58 at 2.5% interest compounded monthly.

Lesson Calculating the present value of a deferred

 2 annuity

What is it

Present Value of a Deferred Annuity

[ ]
− ( k+ n) −k
1−( 1+ j ) 1−( 1+ j )
P=R −R[ ]
j j
Where, R is the regular payment
j is the interest rate per period
n is the number of payments
k is the number of conversion periods in the deferral
Example 1:
1. On his 40th birthday, Mr. Reyes decided to buy a pension plan for himself. This
plan will allow him to claim P10,000 quarterly for 5 years starting 3 months after
his 60th birthday. What one-time payment should he make on his 40 th birthday to
pay off this pension plan if the interest rate is 8% compounded quarterly?
First, draw a timeline to show the value of payments at specific times:

Second, write all the given.

0.08
R = 10,000 k = 4(20) = 80 j= = 0.02
4
n = ct = 4(5) = 20 i4 = 0.08 c= 4

Lastly, substitute and solve.

1−(1+ j)−(k+ n) 1−(1+ j)−k
P=R −R
j j
−(100)
1−(1+ 0.02) 1−(1+ 0.02)−80
P = 10000 −10000 = 430,983.52 – 397,445.14 =
0.02 0.02
P33,538.38

2. A credit card company offers a deferred payment option for the purchase of any
appliance. Rose plans to buy a smart television set with monthly payments of 4,000
for 2 years. The payments will start at the end of 3 months. How much is the cash
price of the TV set if the interest rate is 10% compounded monthly?
First, draw a timeline to show the value of payments at specific times:

Second, write all the given.

0.1
R = 10,000 k=2 j= = 0.00833 n = 12(2) = 24
12
Lastly, substitute and solve.
−(k+ n) −k
1−(1+ j) 1−(1+ j)
P=R −R
j j
 −(26) −2
1−(1+ 0.00833) 1−(1+ 0.00833)
P = 4000 −4000 = P93,161.67 – 7,901.14 =
0.00833 0.00833
P85,260.53

What’s More

Directions. Solve the problem below and show your solution.

1. Find the present value of a 2-year deferred annuity at 4% interest compounded
quarterly with payments of P1100.00 made every quarter for 3 years.
2. What amount should you invest now if you want to receive payments of P3,000 at
the end of each year for 10 years with the receipt of the first payment 3 years from
now if the money is 5% compounded annually?
 Assessment
Directions: Read carefully each item and select the best answer.

1. Find the deferral period of semi-annual payments of P45,000.00 for 3 years that
will start 5 years from now.
a.10 periods b.9 periods c. 8.5 periods d. 8 periods
2. Which of the following real life situations is an example of annuity:
a. A credit card company offering its client to purchase today but to start
paying monthly with their choice of term after 3 months.
b. A police man who has gained extra income now and wants to save his
money so that he can withdraw his money monthly starting on the day of his
retirement from work
c. A real estate agent is urging a condominium unit buyer to purchase now and
start paying after 3 years when the condominium is ready for occupancy.
d. all of the above
For item 3-7, refer to the situation below.
A loan of P30,000.00 is to be repaid monthly for 5 years that will start at the
end of 4 years. If the interest rate is 12% converted monthly, how much is the
monthly payment?
3. The type of annuity illustrated in the problem is ____________
a. annuity b. simple annuity c. general annuity d. deferred annuity
4. The total number of payments is____________
a.60 b.58 c.56 d.54
5. The number of conversion periods of deferral is ____________
a.50 b. 47 c.44 d.41
6. The interest rate per period is ____________
a.0.12 b.0.012 c.0.01 d.0.001
7. the present value of the loan is_________
a. P45,000.00 b. P40,000.00 c. P35,000.00 d. P30,000.00
8. The present value of deferred annuity is given by P =

[ ]
− ( k+ n) −k
1−( 1+ j ) 1−( 1+ j )
R −R[ ]
j j
where r is __________.
a. rate interest b. regular payment c. rate conversion d. rate
9. On his 40th birthday, Mr. Reyes decided to buy a pension plan for himself. This
plan will allow him to claim P10,000 quarterly for 5 years starting 3 months after
his 60th birthday. What is the regular payment of the given problem?
a.P33,538.38 b. P30,000.00 c. P20,000.00 d. P10,000.00
10. What amount should you invest now if you want to receive payments of P3,000 at
the end of each year for 10 years with the receipt of the first payment 3 years from
now if the money is 5% compounded annually?
a. P21,512.52 b. P21,511.52 c. P21,011.52 d. P20,111.52
 Answer Sheet

Name: __________________________________________________________
Grade & Section: ________________ Score: _______

Quarter 2 – Module 3

Lesson 1
What’s More
1.
2.
3.
4.

Lesson 2
What’s More
1.
2.

Assessment
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
 Answer Key

References
Leo Andrei A. Crisologo, et al 2016. General Mathematics Teacher’s Guide.
Pasig City: Lexicon Press Inc.
Lynie Dimasuay, et al 2016. General Mathematics. Quezon City: C & E
Publishing Inc.