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INSURANCE PAYMENTS
PENSIONS PAYMENT
HOUSE RENT PAYMENT
CAR PAYMENT
CELLPHONE PAYMENT
ANNUITY
 OBJECTIVES

Define Annuity.
Solve problems involving annuity.
Classify Simple Annuity.
Appreciate the importance of Annuity
Due to real life.
 ANNUITY

An Annuity is a financial instrument

issued and backed by an insurance
company that provides guaranteed
monthly income payments for the life of
the contract, regardless of market
condition.
Is a sequence of periodic payments paid
or received at equal time intervals.
 EXAMPLES OF ANNUITY

Monthly House rent payments

Annual premiums of Insurance Policy
Instalment payments in purchasing a
house
Monthly Retirement Benefits (Pension
Plan)
 SIMPLE ANNUITY

Is an annuity whose payment interval is

the same as the interest period
(conversion period m.)
 CLASSIFICATION OF SIMPLE ANNUITY

Ordinary Annuity (most commonly used)

– An annuity whose periodic payments
are made at the end of each payment
interval.
Annuity Due – An annuity whose
periodic payments are made at the
beginning of each payment interval.
Deferred Annuity – an annuity whose
first payment is to start at some future
date.
ORDINARY
ANNUITY
 THE AMOUNT, PRESENT VALUE, AND
PERIODIC PAYMENT OF AN ORDINARY
ANNUITY
Ordinary Annuity is a sequence of equal
periodic payments due at the end of
each period.
NOTATION OF TERMS
 EXAMPLE 1:

Determine the amount and present value of

an ordinary annuity of P1500 every three
months for 5 years, if money is worth 12%
compounded quarterly.
Given: R = P1500
m = 4
R = 0.12
T = 5 years
N = mt = 4(5) = 20
i = r/m = 0.12/4 = 0.03
SOLUTION:

 Solving for the Amount

 = Php 40,305.56
 Solving for the present value

 = Php 22,316.21
 Therefore, the amount and present value of the annuity are Php
40,305.56 and Php 22,316.21 respectively.
 EXAMPLE 2:

Mrs. Christine Santos deposits P5,500 at the end of

every six months in a savings account for her daughter’s
education that pays 8% interest compounded semi –
annually. How much will she have in her account at the
end of 10 years and 6 months?
Given:
R = P5,500
m = 2
r = 0.08
n = 21
t = 10.5 years
i = 0.04
 SOLUTION:

= Php 74,174.93
Therefore, Christine Santos will have Php 74,174.93
at the end of 10 years and 6 months.
 TRY IT!!

Find the present value of an ordinary annuity whose

monthly payment is P1000 payable for 7 years at 8
¾ % compounded monthly.
Given :
 SOLUTION:

= Php 62, 646.86

Thus, the present value is Php 62, 646.86
 A cellular phone is purchased with P4,500 down payment and the
balance will be paid monthly at P1,750 for one year. What is the
cash price of the cellular phone if money is worth 13% converted
monthly?

 Given:
 SOLUTION:

Therefore, the cash price of the cellular phone is Php

24,093.07
Find the monthly payment of an ordinary annuity if
the present value is P16,300 with the interest rate of
9%, compounded monthly for 6 years.
Given:
 SOLUTION:

= Php 293.82
Thus, the monthly payment is Php 293.82
ANNUITY DUE
 DEFINITION

An annuity due is annuity whose

payment is due immediately at the
beginning of each period.
Required Formula

Present Value

Amount

Periodic payment given the

amount of an annuity due

Periodic Payment given the

present value of an annuity due

Cash Price
 EXAMPLE 1:

How much should be deposited in an

account at the beginning of each quarter
in order to have Php 95,000 after 5 years
at 12.5% compounded quarterly?
Given:
 SOLUTION:

Therefore, to have Php 95,000 after 5

years, a quarterly deposit of Php
3,384.99 should be made.
 EXAMPLE 2:

Roger buys a television for Php 45,600. He pays Php

15,000 down payment and pays the balance in 12
equal monthly payments at the beginning of each
month. If interest is 12% compounded monthly, how
much is each payment?
Given:

N = 12
 SOLUTION:

Therefore, Roger has to pay Php 2,691.85 at

the beginning of each month for 12 months.
 EXAMPLE 3:

What is the present value of an annuity due whose

semi – annual payment is Php 13,500 for 7 years if
money is worth 8% compounded semi – annually?
Given:
 SOLUTION:

Thus, the present value of the annuity due is

Php 148, 306.25.
 EXAMPLE 4:
Nathalie deposited Php 7,500 in her account at the
beginning of each three months at 6% compounded
quarterly. How much will be in her account on August
17,2015 if she makes her first deposit in August 17,
2012?
Given:
 SOLUTION:

Thus, there will be Php 99,276.22 in her

account by August 17,2015.
 TRY IT!!

What is the present value of an annuity

due whose monthly payment is Php
3,500 for 4 years if money is worth 12%
compounded monthly?
Roxanne needs Php 134,000 three
years from now. How much should she
deposit at the beginning of each 3
months in order to accumulate the
desired amount if money is worth 4%
compounded quarterly?
Find the amount of an annuity due of
Php 4,800 payable at the beginning of
every 6 months for 3 ½ years at 11%
compounded semi – annually?
 ANNUITY BENEFITS

Tax – Deferred Growth

No Contribution Limits
Fund your Retirement
Provides for your Family
THANK YOU!!!