Professional Documents
Culture Documents
Annuities
Annuities
Annuities
Annuity
• A sequence of equal payments made at equal
intervals of time.
• Annuities are usually applied in payments for large
purchases, such as houses, condominiums, cars, or
insurance plans.
• Annuities classified according to when the periodic
payments are made are classified into ordinary
annuity, annuity due, and deferred annuity.
Basic Terms in Annuity
• Payment Interval - the time between two successive payment
dates.
• Term - the time from the beginning of the first payment
interval to the end of the last one; number of intervals;
number of interest period.
• Present value - value of the annuity at the beginning of it term.
• Future value - value of the annuity at the end of its term or
sum of the compound amounts of several payments
accumulated to the end of the term.
Ordinary Annuity
• Present Value
1 i 1
n
PV R n
i 1 i
• Future Value
1 i 1
n
FV R
i
Examples:
• Edith deposits ₱500 every half month for 2 years. If
interest is at 8% compounded semiannually, how much
does Edith have in the bank for 2 years?
• Find the amount of an ordinary annuity of ₱500 every
end of 3 months for 3 years at 12% compounded
quarterly.
• Mrs. Perez provided her son an education trust fund by
remitting ₱500 every month for 3 years at 16%
compounded monthly. How much will be the amount after
the last deposit.
Examples:
• Money is worth 8% compounded quarterly. What is the
present value and the amount of an annuity paying ₱1000
quarterly for 15 years?
• Mrs. Rodriguez pays ₱800 monthly for 6 years to settle her
debt. If the money is worth 12% compounded monthly,
how much was the original debt?
• Find the present value of an ordinary annuity of quarterly
payments of ₱10,000 for 2 years 8% compounded
quarterly.
Seatwork
1. Find the amount of the following ordinary annuities:
a. ₱400 a year for 12 years at 12 1/2%.
b. ₱900 a month for 6 years 3 months, at 6% compounded
monthly.
c. ₱500 per quarter 3 years 9 months, at 6% compounded monthly.
2. Bert saves ₱600 each half-year and invest it at 3% compounded
semiannually. Find his savings after 10 years.
3. Mrs. Reyes is paying ₱3060 at the end of each 6 months as the
premium on an endownment policy which will pay her ₱20000 at
the end of 5 years. How much would she have if she deposits each
payments in a savings accunt paying 3% compounded
semiannually
Seatwork
4. Find the cash equivalent of an annuity paying ₱240 at the end of
each 3 months for 10 years, assuming money worth 5%
compounded quarterly.
5. It is estimated that a stand of timber will net ₱25000 a year for the
next 10 years and that the land can then be sold for ₱15000.
Find the fair price today, money worth 6%.
6. Find the cash equivalent of an annuity paying ₱1000 at the end of
each 3 months for 15 years, assuming money worth 10%
compounded quarterly.
Periodic Payments
• Present Value PV
R
1 i 1
n
n
i 1 i
• Future Value
FV
R
1 i 1
n
i
Examples:
1. How much must a person save every month to accumulate
₱30,000 in 3 years if money is worth 18% compounded
monthly?
2. A man bought a sala set worth ₱18,000 and pays a
downpayment of ₱3,000 cash, and agrees to pay the rest
for 3 years by quarterly payments at 20% compounded
quarterly. Find the quartely payments.
3. Carlos Juan has ₱50,000 in a bank which he invest at 8%
compounded semiannually. What semiannual withdrawal
must be made for 3 years?
Examples:
4. In order to have ₱25,000 available on July 20, 2001, equal
quarterly deposits are to be made in a fund earning 10%
compounded quarterly. The first deposit is made on
January 20, 1999 and the last on July 20, 2001. Find the
deposit required.
5. Mr. Tolentino was given ₱30,000 six months before he
enters college which he invested at 15% compounded
semiannually. what is semiannual withdrawals will he
have for the first in 6 months, for following 5 years will
this provide?
Seatwork
1. Joey borrows ₱1,000. He agrees to pay the principal and interest
by paying a sum every 3 months for 3 years. If the interest is 16%
compounded quarterly, how much should he pay every 3 months?