UNIFORM SERIES

Annuity is a series of equal payment made at equal intervals of time.

For Ordinary Compounding For Continuous Compounding

( ) ( )
F= F=

F = P(1 + ) F = P𝑒
( ) ( )
P= P= ( )
( )

where:
A = Annuity or Equal Payments
F = Future Amount or Accumulated Amount
P = Principal Amount
I = Interest
n = Number of years
i = Nominal Interest Rate
m = Frequency of compounding in a year
e = Euler’s Number (2.71828…)

Ordinary Annuity – the equal payments are made at the end of each payment period starting
from the first period.

Sample 01: CE Board May 1999

A man paid 10% down payment of P200,000.00 for a house and lot and agreed to pay
90% balance on monthly installments for 60 months at an interest rate of 15% compounded
monthly. Compute the amount of monthly payment.

Solution:
i = 15%
mn = 60
m = 12 (monthly)

Cost of House and Lot

, .
=
.
= 2,000,000.00

Balance after Down Payment

P = 2,000,000.00 – 200,000.00
 P = 1,800,000.00

Monthly Payments
( )
P=
( )

( )
A=
( )
. .
, , . ( )
A= .
( )
A = 42,821.87

Sample 02: CE Board May 2000

Ryan invest 5,000.00 at the end of each year in an account which gives a nominal
annual interest of 7.5% compounded continuously. Determine the total worth of his
investments at the end of 15 years.

Solution:
i = 7.5%
A = 5,000.00
n = 15 years
m=1

Future Worth of Investments

( )
F=
, . ( . ( ) )
F= .

F = 133,545.58

Deferred Annuity – also an ordinary annuity but the payment of the first amount is deferred
a certain number of period after the initial date. Problems on deferred annuity can be
transformed into ordinary annuity

Sample 01: CE Board May 2003

A man pays 20,000.00 per year for 8 years starting at the end of the 11 th year from
now. Using an interest rate of 5% compounded annually, what is the value of the amount
borrowed now?

Solution:
Deferred time: 10 years (minus 1 payment period from date of first payment)
n = 8 years (period of payment)
i = 5%
 A = 20,000.00

Worth after 10 years (before payment starts)

( )
P10 =
( )
[( ) ]
P10 = ( ) ()
, . ( . )
P10 = ( ) ( .
. )
P10 = 129,264.26

Worth of Borrowed Money Now

P10 = P(1 + i)
129,264.26 = P (1 + 0.05)
P = 79,357.04

Another Solution
Worth of money after 18 years (after the payment period)
( )
F=
, . ( . )
F=
.
F = 190,982.18

Worth of Borrowed Money Now

F = P(1 + i)
190,982.18 = P(1 + 0.05)
P = 79,357.04

Sample 02:
A commercial building worth 900,000.00 is bought with a down payment of
500,000.00 and yearly payment at the end of each year for a period of ten years, starting at
the end of 5 years from date of purchase. If money is worth 12% compounded yearly, what
is the amount of yearly payment?

Solution:
Deferred time: 4 years
n = 10 years (payment period)
i = 12%
m=1

Present Worth of Money

P = 900,000.00 – 500,000.00
P = 400,000.00
 Worth of Money after 4 years
P4 = P(1 + i)
P4 = 400,000.00(1 + 0.12)
P4 = 629,407.74

Annual Payments (starting on the 5th years)

[( ) ]
P4 = ( ) ()
( . )
629,407.74 = ( )
. ( . )
A = 111,395.20

Another Solution:
Future worth of money (after 14 years)
F = P(1 + i)
F = 400,000.00(1 + 0.12)
F = 1,954,844.91

Annual Payments
[( ) ]
F=
( . )
1,954,844.91 =
.
A = 111,395.20

Annuity Due – is one type of annuity where payments are made at the beginning of each
period beginning from the first period.

For Ordinary Compounding For Continuous Compounding

( ) ( )
F= -A F= -A
( ) ( )
P =A + P =A + ( )
s
( )

where:
A = Annuity or Equal Payments
F = Future Amount or Accumulated Amount
P = Principal Amount
I = Interest
n = Number of years
i = Nominal Interest Rate
m = Frequency of compounding in a year
e = Euler’s Number (2.71828…)
Sample 01:
A contractor bought a welding machine costing 250,000.00 payable in 10 semi-annual
payments, each installment payable at the beginning of each period. If the rate of interest is
26% compounded semi-annually, determine the amount of each installment.

Solution:
i = 26%
P = 250,000.00
mn = 10
m=2

Semi-annual Payments
( )
P=A+
( )
.
( )
250,000.00 = A + . .
( )
, .
A= ( . )
( . ) ( . )
A = 40,772.03

Sample 02:
A man wishes to have 35,000.00 when he retires 15 years from now. If he can expect
to receive 4% annual interest, how much will he set aside in each 15 equal annual beginning
of year deposits

Solution:
i = 4%
F = 35,000.00
mn = 15
m=1

Annual Deposits
( )
F= -A
( )

A= ( )
()
, .
A= ( . )
( . )
A = 1680.71
Perpetuity – an annuity where the payment periods extend forever or which the periodic
payments continue indefinitely.

P=
where:
P = Present Value of Perpetuity
i = Interest Rate
m = Frequency of compounding per year

Sample 01:
Find the present value in pesos of a perpetuity of 15,000.00 payable semi-annually if
money is worth 8% compounded quarterly.

Solution:
A = 15,000.00
i = 8% (quarterly)

Convert Quarterly Compounding to Equivalent Semi-Annual Compounding

ie (quarterly) = ie (Semi-Annual)
.
(1 + ) − 1 = (1 + ) − 1
i = 0.0808

Semi-Annual Payments
P=
, .
P= .

P = 371,287.13

Sample 02:
A man wishes to borrow 5 million and promised to pay equal amount every month
for the rest of his life. Find the monthly payment if money is worth 9% compounded monthly.

Solution:
P = 5,000,000.00
i = 9%
m =12

Monthly Payment
P=

A = P( )
.
A = 5,000,000.00( )
A = 37,500.00