ANNUITIES

Ordinary Annuities
 ILLUSTRATION 1
• Borrowed Amount/Loan: P = PhP 100,000
– Rate: 2% compounded semi-annually
– Term: 2 years
• Payable Amount after years: F = PhP 104,060.401

• MODE OF PAYMENT: By single payment after 2 years (or 4 periods)

P = PhP 100,000 F = PhP 104,060.401

0 1 2 3 4 periods
 ILLUSTRATION 2
• Borrowed Amount/Loan: P = PhP 100,000
– Rate: 2% compounded semi-annually
– Term: 2 years

• Payment of R = PhP 25,628.1094 for each period (n = 4 times)

0 year 0.5 1 1.5 years 2 years CD = 2 years
0 year year 3 4 periods
1 2

PhP 25,628.1094 PhP 25,628.1094 PhP 25,628.1094 PhP 25,628.1094 t=0

25,628.10941  .010   25,628.1094

t = 0.5
25,628.10941  .011  25,884.3905
t=1
25,628.10941  .012   26,143.2344

t = 1.5
25,628.10941  .013  26,404.6667

 104,060.401
 Amount (Future Value) of an Annuity
• Annuity – a sequence of equal payments
• Payment period – time between payments
• “Ordinary annuity” – payments at the end of the pay period
• “Annuity due” - payments at the beginning of the pay period
• “Simple annuity” – payment dates match the compounding period
(all our annuities are simple)
• Amount of annuity (FV) – accumulated amount at the end of the
term
• Present Value of annuity (PV) – present value at the beginning of
the term
• Periodic Payment (R) – amount paid/invested/deposited monthly,
quarterly, semi-annually, annually, or periodically.
 Amount (Future Value) of an Annuity

• Amount of an annuity (FV) of n payments of R

for n periods at a rate of i per period:

 1  i n  1
FV  R  
 i 
 Present Value of an Annuity

• Present Value of an annuity ( PV ) of n

payments of R for n periods at a rate of i per
period:
1  1  i  n 
PV  R  
 i 
 Periodic Payment R

FV  i PV  i
R R
1  i   1 1  1  i 
n n
• To pay off a 3-year loan, a client has to
pay PhP 16,700 quarterly (at the end of
each 3 months) at 6% compounded
quarterly. How much was his original
loan?
1  1  .064 
43

PV  PhP16,700  
 
.06
4

 0.1636 
 PhP16,700  
 .015 
 PhP182,141 .33
• Azrel deposits PhP2,500 at the end of each 6 months year in an
account earning 10% compounded semi-annually.
• Determine how much money she has after 25 years.
• How much interest did she earn?
  .10 50 
 1    1
FV  2500 
2  
 .10 
 2 
 
 10.4674 
 2500   PhP 523,370
 .05 

I  PhP 523,370  (50  PhP 2500)  PhP 273,370

• Borrowed Amount/Loan: P = PhP
PV  i
100,000 R
1  1  i 
n
– Rate: 2% compounded semi-
annually
– Term: 2 years .02
• Find the amount to be paid semi-
100,000 x
R 2
annually (every 6 months). 4
 .02 
1  1  
Given:
 2 
PV = PhP 100,000
j = .02 m=2 R  PhP25,628.11
t = 2 years
 Example
Noel purchased a car and paid PhP 9,000
down payment. He agreed to pay PhP 5,500
at the end of every 6 months for 4 years to
pay the remaining balance at the rate 4.8%
compounded semi-annually. Find the
equivalent cash price of the car.
 Solution
Down Payment = PhP 9,000
R = PhP 5,500
t = 4 years
j = 4.8% comp. semi-annually
Balance = ?, Cash Price = ?
1. Let Balance = PV
PV = PhP 39,604.44
2. Cash Price = Down Payment + Balance
CP = PhP 9,000 + PhP39,604.44
= PhP 48,604.44
 Seat work
1. Find the cash price of an Adroid Tablet if it is to be paid by
PhP 899 per month at 9% compounded monthly for 2 years.
2. A 3-year PhP 30,000 loan of Mr. A is to be paid by depositing
equal amounts at the end of each 3 months for 3 years. Find
his quarterly payment if money is worth 2.9% compounded
quarterly.
3. How much will be in your savings account if you deposit PhP
5,200 monthly for 10 years at 3.1% compounded monthly?
4. HOUSE and LOT
Cash price = PhP1,000,000
Down Payment = 20% of the cash price
Question: How much is the monthly payment to pay off the
remaining balance at 5.2% compounded monthly if you are
required to pay for 10 years?