UNIVERSITI KUALA LUMPUR

BUSINESS SCHOOL

OCTOBER 2023 SEMESTER

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EAB 10703

MATHEMATICS FOR BUSINESS

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GROUP ASSIGNMENT : ANNUITY

PREPARED TO:
MADAM NURUL AFZA HASHIM
PREPARED BY:

NAME STUDENT ID

MUHAMMAD HAZIQ BIN ROSLI 62213223463

MUHAMMAD NORAIMAN BIN BAHAROM 62213223426

MUHAMAD SYAZWAN BIN AB ASMAIDI 62213323135

SUBMISSION DATE: 26TH JAN 2024

QUESTION

An annuity is a series of periodic payments (payment by installment) or deposits

(periodic savings) usually made in equal fixed amounts at equal fixed intervals of time.
Examples of annuity are periodic savings by monthly salary deduction, rental payments,
housing installment payment plan etc.

Based on the introduction from annuity topic, create ONE problem (real situation) to
find:

I. The amount of the periodic payment.

II. The future value of annuity.

III. The interest earned.

IV. Missed a few payments than scheduled.

V. Payments done earlier than scheduled.

VI. Create the amortization schedule.

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Company background:

Property Guru (PG), founded in 2007 by Steve Collyer and Janusz Loewe, has emerged as a
leading online property portal company in Southeast Asia, with a significant presence in
Malaysia. Boasting a rich history of providing property listings, market insights, and related
services, PG has become a go-to platform for individuals and professionals navigating the real
estate landscape.

As of 2024, PG stands strong in Malaysia, offering over 1.5 million property listings in Ringgit
Malaysia (RM) and establishing a massive network of agents and developers in the country. With
a market capitalization exceeding RM2 billion, PG is a clear leader in the Malaysian property
market.

PG's diverse array of products and services includes a comprehensive database of properties for
sale or rent, catering to various budgets. The platform also provides valuable market insights,
aiding users in making informed decisions about real estate trends and valuations. PG goes
beyond listings by offering tools and resources for users to find and compare mortgage options in
RM, making the property search process more accessible for everyone.

In Malaysia, PG has strategically positioned itself to hold a significant market share. The
company's success is driven by a commitment to innovation and staying ahead of industry trends.
PG implements targeted marketing campaigns tailored to specific user segments and property
types, utilizes data-driven insights to enhance platform features, and forms partnerships with key
industry players to expand its reach and offerings.

By continually optimizing its services and adapting to the unique dynamics of the Malaysian
property market, PG aims to reinforce its position as the preferred platform for all
property-related needs, contributing to the growth and convenience of the real estate sector in
Malaysia.

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Chapter 1 : INTRODUCTION

1.1 Describe Annuity

As reported by www.ncoa.org (2024), an annuity is a financial product to give a regular,

guaranteed income stream over a specified time or for the rest of a person’s life. Basically, it is a
contract that has mutual agreement between one person and an insurance company in which you
make a lump-sum payment or chain of payments called premiums. You will receive a string of
regular disbursements (payments) for returns that starts immediately or at some time in the
future. Usually, there are three participants involved in an annuity contract which is the first one
is the owner. The owner means the one who buys the annuity and pays for the premium. Second
is, the annuitant who usually entitled to get the annuity payments. Last, the beneficiary or in a
simple words means the person who gets the death benefits only if the annuitant dies. Such an
example, close family members like a spouse. However, this will be referring back to the
contract that has been stated for the eligibility to get it.

1.2 Objectives of study

i) To explore annuity application in real life

Those who knows what is annuity and how to use it must be able to apply it in a real life. An
example of annuity can be understand with this scenario. A life insurance policy is an example of
a fixed annuity where an individual needs to pay a fixed amount for every months to the
insurance company depending on the agreed period usually 60 years. Those payers will receive a
fixed income stream at their retirement years to sustain their life (Kagan,2024). Next example is,
lottery. This is because for those who won large jackpots, they have the options to either take a
lump sump in which the amount will be lesser than the one that being advertised or to take
payments over time, this payments over time are called as annuity (Byman,2023).

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ii) To apply annuity formula for the chosen problem

In annuity, there are two formulas that being used which is the first one is :

A = R [ 1 – ( 1 + i ) ^-n / i ] – Present Value

S = R [ ( 1 + i ) ^n – 1 / i ] – Future Value

R – Regular payment

i – r/m where r is interest rate, m is the period that being compounded

n – m x t , t is the term of the annuity

According to the problem stated, a future value formula will be used to solve the issue.

iii. To calculate the amortization schedule of the problem

An amortization schedule outlines the repayment of a loan or the reduction of a debt over time.
This objective involves computing the amortization schedule for the chosen problem related to
annuities. This process helps in visualizing how payments are allocated between interest and
principal, aiding in effective financial planning.

By achieving these objectives, this study aims to enhance understanding of annuities, their
applications, and the practical use of associated formulas in financial calculations.

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CHAPTER 2: METHODOLOGY

2.1 Problem Description

Hassan and his family of five right now are staying at his parent house. Ni He planned
that one day he and his family move to another house to make sure his family feel comfortable.
His mission is to buy a house that is safe, close to school for their children and has everything
that his family needs. For now, he already has one house to secure. The house costs RM700,000
with two bedrooms, two bathrooms, a living room area and a balcony. He purchases a house in
January 2020 for RM700,000 with a mortgage breakdown at 5% interest rate for 30 years. He
want to pay it with monthly payments.

2.2 Data Collected

Based on the information given in 2.1, we understand that Hassan and his family want to
buy a house for their accommodation. He also wants to pay it in monthly payments which is by
using annuity. Below is the data that has been collected from the problem described.

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CHAPTER 3: RESULTS AND INTERPRETATION

3.1 Calculation

After all data has been collected from the problem given, we can calculate his period payments,
R. It is important for Hassan to know how much he needs to spend for his new house every
month to make sure he can plan his finances wisely. In order to calculate periodic payments, R,
we need to use the formula present value of annuity at the end of n interest periods. Below is the
calculation for periodic payments, R:

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IV. Missed a few payments than scheduled.

a) Hassan did not paid his monthly payment in 2030 starting from March until June
because of being laid off. After that he wanted to pay all outstanding arrears in
July. Therefore the amount he should pay will be shown in this calculation below:

b) Later on let say hassan wanted to settle all of the loan straight away after paying
the deferred payment, the additional payment that he has to make will be shown
in this calculation below:

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V. Payments done earlier than scheduled.

Hassan intend to pay all the remaining balance because he got a bonus. He decided to prepay 5
years early with the same interest. So his loan will end in 2045 because of prepayment.

In Conclusion, it is proven that the monthly payment has undergone a variation from the initial
monthly installment of RM 3,757.75 to the adjusted amount of RM 4,092.13. Additionally, there
is a discernible difference in the accrued interest, ranging from the original interest earned of RM
652,790 to the adjusted figure of RM 527,639. Now this is the benefit of settling the payment
earlier than schedule where the interest paid will be lesser than original.

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3.2 Amortization Schedule

Here's an amortization schedule for the 30 years by monthly of the mortgage:

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Chapter 4: Conclusion

In conclusion, we can summarize that one of the methods that can be used to pay
property is by using an annuity. By using Maybank`s Housing Loan as annuity can make it easier
for people to buy a property. There are a lot of benefits that we already know after making a
report about annuity. One of the benefits of an annuities is that it can provide a regular income
stream and this is very important for a worker who is already retired. It will help them to plan
their budget wisely. By creating a problem about annuity and prepare a solution for those
problems, there are a few things we can conclude. Firstly, this annuity can bring a lot of profit to
the bank that people want to use because of the interest that they need to pay. If the interest rate
and interest period is increase, it will lead to the increasing of amount to pay for the individual.
Secondly, we can conclude that for those who have a lot of money, we suggest that they just buy
a property by using cash to avoid any extra payments from using annuity.

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References

1. The National Council on Aging. (n.d.).

https://www.ncoa.org/article/what-is-an-annuity-and-how-does-it-work
2. Kagan, J. (2024, January 20). Guide to annuities: What they are, types, and How they
work. Investopedia. https://www.investopedia.com/terms/a/annuity.asp
3. Byman, J. (2023, November 9). What is an example of an annuity? Northwestern Mutual.
https://www.northwesternmutual.com/life-and-money/what-is-an-example-of-an-annuity/

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