ANNUITY

Week 2, Day 3
Learning Objectives
•Solve the future value and present value
of a simple annuity.
•Verify the relation of the present and
future value of an annuity.
• Explain one’s appreciation of the time
value of money.
Recall
ACTIVITY

•Draw a cash flow diagram

of an installment payment
of an appliance of P3000
every month for 6 months.
How much
is the
appliance?
What allow appliance stores to
sell their products on an
installment basis?
Credit Cards or Lending Institutions
How much
• With Credit cards, is it as easy as
is the
appliance?
Suppose that each payment is
compounded every month at 0.75%.
What are the compound
amounts of all the regular
payment?
What is the sum of all the “principals?”
What is the sum of all the compound amount?
Suppose that each payment is
compounded every month at 0.75%.
How much is needed at the
beginning of the term that
pays the same interest for
each regular payment?
What is the sum of all the “principals?”
What is the sum of all the “principals?”
What is the compound amount of the sum of all the
“principals?”
The sum of the compound amounts of all regular
payments is what we call thefuture value
while the sum of the “principals” of all the regular
payments is present value. The compound amount of
the present value is also equal to the future
value of the annuity.
What is your interpretation of the
saying “a dollar today is worth
more than a dollar tomorrow?”