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Simple Deferred Annuity For Demo
Simple Deferred Annuity For Demo
Game:
CALCULATE
ACCURATE
CHOCOLATE
1. TIME’S UP!
Find the cash price of
Television Set.
monthly payments of
P2,000 for 1 year
with interest rate of 8%
compounded monthly
( −12 𝑥 1)
0. 08
𝑃=
[ (
2 , 0 00 1− 1+
12 ) ]
0. 08
( 12 )
𝑃= ₱ 22,991.56
2. TIME’S UP!
Find the present value of a
loan:
Semi-annual payments of
Php8,000 for 10 years
with interest rate of 6%
compounded semi-annually
(− 2 𝑥 10)
0. 06
𝑃=
[ (
8,0 00 1 − 1+
2 ) ]
0. 06
( 2 )
𝑃= ₱ 119,019.80
Deferred Payment!
3 months
₱2,325.36/ month
1 year
Deferred Payment!
3 months
₱2,325.36/month
1 year
De f er re d
A n nu it y
Deferred Annuity - an
annuity that does not
begin until a given time
interval has passed.
Problem. Suppose Mr. Gran wants
to purchase a cellular phone. He
decided to pay monthly for 1 year
starting at the end of the month.
How much is the cost of the
cellular phone if his monthly
payment is P2,500 and interest is
at 9% compounded monthly?
Given:
R = P2,500
t = 1 year
r = 9% or 0.09
m = 12
n = 12
Find: P
−𝑛
𝑟
𝑃=
[
𝑅 1 − 1+
𝑚 ( ) ]
𝑟
(𝑚)
− 12
0.09
𝑃=
[ (
2,500 1 − 1+
12 ) ]
0.09
( 12 )
P = P28,587.28
What if Mr. Gran is considering
another cellular phone that has a
different payment scheme? In this
scheme, he has to pay P2,500 for 1
year starting at the end of the
fourth month. If the interest rate is
also 9% converted monthly, how
much is the cash value of the
cellular phone?
In this example, Mr. Gran pays
starting at the end of the 4th
month to the end of the 15th
month.
𝑃
𝑅 𝑅
𝑅 𝑅
...
𝑅
0
1
2
3
4 5
6 7
... 1
Now, how do we get the
present value of this
annuity?
Step 1: there are no skipped
payments.
In this example, Mr. Gran pays
starting at the end of the 4th
month to the end of the 15th
month. The time diagram for this
option is given by:
Artificial Payments
𝑃 𝑅 𝑅 𝑅 𝑅 𝑅
𝑅 𝑅
...
𝑅
0
1
2
3
4
5
6 7
... 1
Given:
R = P2,500
r = 9% or 0.09
m = 12
n = 15
Find: P
−𝑛
𝑟
𝑃=
[ (
𝑅 1 − 1+
𝑚 ) ]
𝑟
(𝑚) − 15
0.09
𝑃=
[ (
2,500 1 − 1+
12 ) ]
0.09
( 12 )
P = P35,342.49
Step 1: there are no skipped
payments.
0
1
2
3
4
5
6 7
... 1
Given:
R = P2,500
r = 9% or 0.09
m = 12
n=3
Find: P
−𝑛
𝑟
𝑃=
𝑅
[ 1− (1+ )
𝑚 ]
𝑟
(𝑚)
−3
0.09
𝑃=
[ (
2,500 1 − 1+
12 ) ]
0.09
( 12 )
P = P7,388.89
Step 3: Since the
payments in the period of
deferral are artificial
payments, we subtract the
present value of these
payments. We obtain:
Assumed no
P35,342.49 skipped payments
P 7,388.89 Artificial payments
P27,953.60
*Thus, the present value of the cellular
phone is P27,953.60
Formula to find the present value
of deferred simple annuity:
−𝑘 − ( 𝑘 +𝑛 )
𝑅 [ ( 1 +𝑟 /𝑚 ) − ( 1+𝑟 / 𝑚 ) ]
𝑃=
𝑟
( ) 𝑚
Where:
Using the formula we can
easily compute the
deferred annuity
Given:
R = P2,500
r = 9% or 0.09
m = 12
n = 12
k= 3
Find: P
−𝑘 − ( 𝑘 +𝑛 )
𝑅 [ ( 1 +𝑟 /𝑚 ) − ( 1+𝑟 / 𝑚 ) ]
𝑃=
𝑟
( )
𝑚
−3 − ( 3 +12 )
2,500 [ ( 1+0.09/ 12 ) − (1+0.09 / 12 ) ]
𝑃=
0.09
( 12 )
𝑃=P 27,953.60
Period of Deferral
Period of Deferral - time
between the purchase of an
annuity and the start of the
payments for the deferred
annuity.
0 1 2 3 4 5 6 7 8 9 10
5 months or 5 periods
Semi-annual payments of
P15,000 for 10 years that
will start 5 years from now
P
0 4m 8m 1y 1y,4m . . . 4y,8m 5y
0 3m 6m 9m 1y 1y,3m . . . 6y
0 1m 3m 5m 7m 9m . . . 3y
18 periods or 18 2-month intervals
Payments of P500 every month
for 1 year that will start at the
end of the third month .
0 1m 2m 3m 4m 5m . . . 13 14
2 periods or 2 months
Payments of P200 every 5
months for 3 years that will
start at the end of 5 years.
Find: P
Problem # 2
Given:
R = P750
r = 10%
m = 12
n = 24
k= 3
Answer: ₱15,853.49
Find: P
Let’s do some recap!
Question:
𝑃= ₱152,201.66
Given:
R = P1,800
t = 12 months
r = 10% or 0.10
m = 12
n = 12
k= 2
Find: P
−𝑘 − ( 𝑘 +𝑛 )
𝑅 [ ( 1 +𝑟 /𝑚 ) − ( 1+𝑟 / 𝑚 ) ]
𝑃=
𝑟
( )𝑚
−2 − ( 2+12 )
1,8 00 [ ( 1+0.10 / 12 ) − ( 1+ 0.10 /1 2 ) ]
𝑃=
0. 10
( 12 )
𝑃= ₱20,137.10
Assignment:
Answer Lesson 30, B
Supplementary Exercises
Page 205
Problem Solving nos. 8 and 9
Write your answer and solution
in a bond paper.
8. Mr. Canlapan deposited his
money from selling his old vehicle.
The fund would allow him to
withdraw P45,000 semi-annually
for 5 years starting at the end of 1
year. How much is the amount
deposited if the interest rate is 2%
converted semi-annually?
9. A cellular phone may be
purchased at P1,500 payable
monthly for 18 months. The first
payment is due after 3 months.
How much is the cellular phone if
the interest rate is 12%
convertible monthly?
Tomorrow bring the following
for your PORTFOLIO:
𝑃
𝑃 10,000 𝑃 10,000 𝑃 10,000
0
1
2 . . . 81
82 . . . 100
Given:
R = P10,000
r = 8% or 0.08
m= 4
n = 4 x 5 = 20
k = 4 x 20 = 80
t = 5 years
Find: P
−𝑘 − ( 𝑘 +𝑛 )
𝑅 [ ( 1 +𝑟 /𝑚 ) − ( 1+𝑟 / 𝑚 ) ]
𝑃=
𝑟
( )
𝑚
− 80 − ( 80+20 )
0.08 0.08
𝑃=
10,000
[( 1+
4 ) ( − 1+
4 ) ]
0.08
( 4 )
𝑃= 𝑃 33,538.38
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 P4,000 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 quarterly?
Time diagram:
𝑃
𝑃 4,000 𝑃 4,000 𝑃 4,000
0
1
2
3 4 . . . 26
Given:
R = P4,000
r = 10% or 0.10
m= 4
= 12
= years
n = 12 x 2 = 24
k= 2
Find: P
1
𝑟
𝑚
( )−1
𝑗=
[( ) ]
1+
𝑚
𝑚𝑗
1
0. 10 ( )
4
[ 4 )]
𝑗 = ( 1+
12
−1
−𝑘 − ( 𝑘 +𝑛 )
𝑅 [ ( 1+ 𝑗 ) − ( 1+ 𝑗 ) ]
𝑃=
𝑗
−2 − ( 2+24 )
4,000 [ (1+0.008265 ) − ( 1+ 0.008265 ) ]
𝑃=
0.008265
𝑃= ₱85,338.09
3. Emma availed of a cash loan
that gave her an option to pay
P10,000 monthly for 1 year. The
first payment is due after 6
months. How much is the
present value of the loan if the
interest rate is 12% converted
monthly?
Time diagram:
𝑃 𝑃 10,000 𝑃 10,000 𝑃 10,000
0
1 ...
6 7
8 . . . 17
Given:
R = P10,000
r = 12% or 0.12
m = 12
n = 12
k= 6
Find: P
−𝑘 − ( 𝑘 +𝑛 )
𝑅 [ ( 1 +𝑟 /𝑚 ) − ( 1+𝑟 / 𝑚 ) ]
𝑃=
𝑟
( )
𝑚
−6 − ( 6+12 )
0.12 0.12
𝑃=
10,000
[( 1+
12 ) ( − 1+
12 ) ]
0.12
( 12 )
P= ₱ 𝟏𝟎𝟔 , 𝟎𝟐𝟕 . 𝟗𝟐
4. Adrian purchased a laptop through
the credit cooperative of their
company. The cooperative provides an
option for a deferred payment. Adrian
decided to pay after 4 months of
purchase. His monthly payment is
computed as P3,500 payable in 12
months. How much is the cash value of
the laptop if the interest rate is 8%
convertible monthly?
Time diagram:
𝑃
𝑃 3,500 𝑃 3,500
0
1 ...
3
4
5 . . . 16
Given:
R = P3,500
t = 12 months
r = 8% or 0.08
m = 12
n = 12
k= 4
Find: P
−𝑘 − ( 𝑘 +𝑛 )
𝑅 [ ( 1 +𝑟 /𝑚 ) − ( 1+𝑟 / 𝑚 ) ]
𝑃=
𝑟
( )
𝑚
−4 − ( 4 +12 )
0.08 0.08
𝑃=
3,500
[( 1+
12 ) ( − 1+
12 ) ]
0.08
( 12 )
𝑃= ₱ 𝟑𝟗 ,𝟏𝟕𝟗 . 𝟗𝟒
5. Mr. and Mrs. Mercado decided to
sell their house and to deposit the fund
in a bank. After computing the interest,
they found out that they may withdraw
P350,000 yearly for 4 years
starting at the end of 7 years when
their child will be in college. How much
is the fund deposited if the interest
rate is 3% converted semi-annually?
Time diagram:
𝑃 𝑃 350,000 𝑃 350,000 𝑃 350,000
0
1 ...
6
7
8 ... 10
Given:
R = P350,000
r = 3% or 0.03
m= 2
= 1
= 4 years
n=4
k=6
Find: P
1
𝑟
𝑚
( )−1
𝑗=
[( ) ]
1+
𝑚
𝑚𝑗
1
0. 10 ( )
2
[ 2 )]
𝑗 = ( 1+ −
1
1
−𝑘 − ( 𝑘 +𝑛)
𝑅 [ ( 1+ 𝑗 ) − ( 1+ 𝑗 ) ]
𝑃=
𝑗
−2 − ( 2+24 )
4,000 [ (1+0.030225 ) − ( 1+ 0.030225 ) ]
𝑃=
0.030225
𝑃= ₱ 1,087,541.81