Annuity Due

Ms. Joanna Marie Rayray

 • Find the future value
and present value of
Learning Annuity due.
Objectives:
 Future Value

The future value of an annuity is the total

accumulation of the payments and interest
earned.
 Present Value

The present value of an annuity is the principal that must be

invested today to provide the regular payment of an annuity.
 Calculating Future Value of an
Annuity Due
If the amount of annuity payments is made at the beginning of
each interest conversion period, the future vaalue of an annuity
due is desired.
 Future Value of an Annuity Due
The future vlue of n annuity due for n periods t interest i per compounding
period is
n
( 1+ i ) - 1
FVAnnuity Due = p ( 1+ i )
i

J
i= m
n = t(m)
where p is the fixed periodic payments.
Example:
Mr. Torres invested P 10, 000 in an annuity due on
January 1, 2010 until December31, 2014. The bank
credits 2.2% interest compounded annually to Mr.
Torres' account. Find the future value of Mr. Torres'
annuity.
Given: Solution: 5
(1+0.022) - 1

p = P 10, 000
P 10, 000
[ 0.022
] (1+0.022)

i = 0.022
n=5

]
5

[
P 10, 000 (1.022) - (1.022)
0.022
Formula: 1

(P 10, 000) (5.339841131)

P 53, 398.41
 Calculating Present Value of
an Annuity Due
Calculating the present value of an annuity due such as
future payment for lease for which payments are to be made at
the beginning of each interest conversion period as stated in the
contract can be calculated using the formula that will be
presented.
 Present Value of an Annuity Due
The present value of an annuity due for n periods at interest i per
compounding period is
-n
1 - ( 1+ i )
P Annuity Due =p ( 1+ i )
i
V J
i= m
n = t(m)
where p is thefixed periodic payments.
Example:
Mr. Torres signed a lease contract with the owner of a
commercial space worth P 100, 000 per year for 5 years,
and made a first payment on January 1. Eevaluate the
present value of Mr. Torres' 5-year lease on the same
day the first payment was made assuming a 2.2% annual
compound interest rate.
 Solution:
Given: 1 - (1+0.022)
-5

p = P 100, 000
P 100, 000
[ 0.022
] (1+0.022)

i = 0.022
n=5
1 - (1.022)-5

Formula:
P 100, 000
[ 0.022 ] (1.022)

-n
1 - ( 1+ i )
P Annuity Due =p ( 1+ i )
i P 478, 932.0019
V

P 478, 932.00
Example:

Find the future and present value of an annuity due of P

75, 000 investment at 2% quarterly for 5 years.
 The future value of an annuity due is
Given: Solution: 20
(1+0.005) - 1

p = P 75, 000
P 75, 000
[ 0.005
] (1+0.005)

i = 0.005
n = 20 20

[ ]
P 10, 000 (1.005) - 1 (1.005)
0.005
Formula:

P 1, 581, 300.83
 The present value of an annuity due is
Given: Solution: -20
1 - (1+0.005)
p = P 75, 000
P 75, 000
[ 0.005
] (1+0.005)

i = 0.005
n = 20 -20

[ ]
1 - (1.005)
P 75, 000 (1.005)
0.005
Formula:
-n
1 - ( 1+ i )
P Annuity Due =p ( 1+ i )
i
V P 1, 431, 176.72
 Thank You!
Do you have any questions for me before we go?