Simple Annuity

Definition of Terms
Annuity – a sequence of payments made at equal (fixed) intervals
or periods of time.

Annuities may be classified in different ways, as follows:


According to payment
interval and interest period
According to time of
payment
According to duration
Annuities
Simple Annuity – an
annuity where the interval is
the same as the interest
period
Ordinary Annuity (or
Annuity Immediate) – a
type of annuity in which the
payments are made at the
end of each payment
interval
Annuity Certain – an
annuity in which payments
begin and end at definite
times
General Annuity – an
annuity where the payment
interval is not the same as
the interest period
Annuity Due – a type of
annuity in which the
payments are made at
beginning of each payment
interval
Contingent Annuity – an
annuity in which the
payments extend over an
indefinite (or indeterminate)
 Definition of Terms
Term of an annuity, t – time between the first payment interval
and last payment interval
Regular or Periodic payment, R – the amount of each payment
Amount (Future Value) of an annuity, F – sum of future values of
all the payments to be made during the entire term of the annuity.
Present value of an annuity, P – sum of present values of all the
payments to be made during the entire term of the annuity.
 Example:
Determine if the given situations represent simple annuity or general
annuity.

1. Payments are made at the end of each month for a loan that charges
1.05% interest compounded quarterly.

General Annuity

2. A deposit of PHP. 5,500.00 was made at the end of every three months to
an account that earns 5.6% interest compounded quarterly.

Simple Annuity
 Example:
Determine if the given situations describes an ordinary annuity or an
annuity due.

1. Jun’s monthly mortgage payment is PHP.35, 148.05 at the end of each

month

Ordinary Annuity

2. The rent of an apartment is PHP.7,000.00 and due at the beginning of

each month.

Annuity due
 Amount (Future Value) of an Ordinary
Annuity

𝐹 =𝑅 ¿
Where R is the regular payment;
j is the interest rate per period;
n is the number of payments
 Present Value of an Ordinary Annuity

𝑃= 𝑅 ¿
Where R is the regular payment;
j is the interest rate per period;
n is the number of payments
Periodic Payment R of an Ordinary
Annuity
𝐹
𝑅= 𝑛
(1 + 𝑗 ) − 1
𝐽

𝑃
𝑅= −𝑛
1 −(1+ 𝑗 )
𝐽
 Examples:
1.Suppose Mrs. Remoto would like to save PHP3,000 every
month in a fund that gives 9% compounded monthly.
How much is the amount or future value of her savings
after 6 months?

2. Grace borrowed PHP150,000.00 payable in 2years. To

repay the loan, she must pay an amount every month
with an interest rate of 6% compounded monthly. How
much should he pay every month?
3. Mr. Ribaya would like to save PHP500,000 for his
son’s college education. How much should he
deposit in a savings account every 6 months for 12
years if interest is at 1% compounded semi-
annually?
 Seatwork
1.What is the future value of a monthly payments of
PHP3,000.00 for 4years with interest rate of 3%
compounded monthly.

2.Find the present value of a quarterly payment of

PHP15,000.00 for 10 years with interest rate of 8%
compounded quarterly.

3.Find the periodic payment of an annual payment of the

loan PHP800,000.00 for 5 years with an interest rate of
9% compounded annually.