DEFERRED ANNUITY

(PERIOD OF DEFERRAL)
 DEFINITION OF TERMS
◦Deferred Annuity – an annuity that does not
begin until a given time interval has passed.
◦Period of Deferral – time between the
purchase of an annuity and the start of the
payments for the deferred annuity.
Annual payments of P2,500 for 24 years that will start 12 years from now.

𝑦1 𝑦2 𝑦 3 . . . 𝑦 11 𝑦 12 𝑦 13 𝑦 14 𝑦 15 ...
𝑦0 𝑦 24
2,500 2,500 2,500 2,500
period of deferral 2,500

Find the period of deferral in each of the

following deferred annuity problems.
1. Monthly payments of P2,000 for 5 years that will start 7 months
from now.
6 periods or 6 months
Find the period of deferral in each of the
following deferred annuity problems.
2. Annual payments of P8,000 for 12 years that will start 5 years
from now.
4 periods or 4 years
3. Quarterly payments of P5,000 for 8 years that will start 2 years
from now.

𝑦1 𝑦2

7 periods or 7 quarters
Find the period of deferral in each of the
following deferred annuity problems.
4. Semi-annual payments of P60,000 for 10 years that will start 5
years from now.

𝑦0 𝑦1 𝑦2 𝑦3 𝑦4 𝑦5
9 periods or 9 semi-annual intervals
4. Payments of P3,000 every 2 years for 10 years starting at the end 6 years.

𝑦0 𝑦1 𝑦2 𝑦3 𝑦4 𝑦5 𝑦 6 . . . 𝑦 10 2 periods
or 2-year
intervals
DEFERRED ANNUITY
(PRESENT VALUE)
 FORMULA: PRESENT VALUE OF A DEFERRED
ANNUITY

P R -R

𝑟
𝑖= (t)
𝑚
Where:
R = is the regular payment
i = is the interest rate per period
n = is the number of payments
k = is the number of conversion periods in the deferral
 Example 1: On his 40th birthday, Mr. Ramos decided to buy a pension plan for himself.
This plan will allow him to claim P10,000 quarterly for 5 years starting 3 months after
his 60th birthday. What one-time payment should he make on his 40th birthday to pay off
this pension plan, if the interest rate is 8% compounded quarterly.
𝑦0 𝑦1 𝑦2 𝑦3 ......... 𝑦 60 𝑦
𝑛

40th b-day
60th b-day
Given:
R = 10,000 P R -R
m=4 = 10,000 - 10,000
r = 8% = 0.08
t=5 = 33, 538.38
i = = = 0.02
n = mt = (4)(5)=20
k = 80
Example 2: A credit card company offers a deferred payment options 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 monthly?
𝑦0 𝑦 1. . . 𝑦 2

Given: P R -R
R = 4,000
m = 12 = 4,000 - 4,000
r = 10% = 0.1 = 85,256.56
t=2
i= =
n = mt = (12)(2)=24
k=2
Example 3: Mr. Quijano decided to sell their farm and to deposit the fund in a bank.
After computing the interest, they learned that they may be withdraw P480,000 yearly
for 8 years starting at the end of 6 years when it is time for him to retire. How much is
the fund deposited if the interest rate is 5% converted annually?
𝑦0 𝑦1 𝑦2 𝑦3 𝑦 4 𝑦5 𝑦6 𝑦7 𝑦8

Given: P R -R
R = 480,000
m=1 = 480,000 - 480,000
r = 5% = 0.05 = 2, 430, 766.23
t=8
i = = = 0.05
n = mt = (1)(8)= 8
k=5
-END-