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Annuity Due

This document provides examples of calculating the present value and amount of annuities. It first shows the calculation of the present value of an ordinary annuity of $10,000 paid annually for 3 years with an interest rate of 12% per year. It then shows the calculation of the present value of an annuity due with the same terms. Finally, it shows the calculation of the amount of the ordinary annuity and annuity due with the same terms. The calculations demonstrate the formulas for present value and amount of annuities.

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chris_abelinde
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61 views

Annuity Due

This document provides examples of calculating the present value and amount of annuities. It first shows the calculation of the present value of an ordinary annuity of $10,000 paid annually for 3 years with an interest rate of 12% per year. It then shows the calculation of the present value of an annuity due with the same terms. Finally, it shows the calculation of the amount of the ordinary annuity and annuity due with the same terms. The calculations demonstrate the formulas for present value and amount of annuities.

Uploaded by

chris_abelinde
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 29

Present value of an annuity

R=10,000; j=12%; m=1; t=3 years

.12
= =
= 0.12; = = 31 = 3

1
= 1+

= 10,000 1 + 0.12
= 10,000 1 + 0.12
= 10,000 1 + 0.12
TOTAL
=

1 1+

1
2
3

= 8,928.57
= 7,971.94
= 7,117.80
24,018.31

=10,000

1 1+0.12 3
0.12

= 24,018.31

Present value of an annuity due


R=10,000; j=12%; m=1; t=3 years

.12
= =
= 0.12; = = 31 = 3

1
= 1+

= 10,000 1 + 0.12
= 10,000 1 + 0.12
TOTAL

=+

1 1+ (1)

1
2

10,000.00
= 8,928.57
= 7,971.94
26,900.51

=10,000+10,000

1 1+0.12 (31)
0.12

= 26,900.51

Present value of an annuity due


1 1 + (1)
=+

1 1 + (1)
= 1+

+ 1 1 + (1)
=

(1 + ) 1 + (1)
=

1 1+

= (1+i)

(1+i)

Amount of an annuity
R=10,000; j=12%; m=1; t=3 years

.12
= =
= 0.12; = = 31 = 3

= (1 + )
10,000
11,200 = 10,000 1 + 0.12
12,544 = 10,000 1 + 0.12
33,744

TOTAL
=

1+ 1

=10,000

1+0.12 3 1
0.12

= 33,744

1
2

Amount of an annuity due


R=10,000; j=12%; m=1; t=3 years

.12
= =
= 0.12; = = 31 = 3

11,200
= 10,000 1 + 0.12
12,544
= 10,000 1 + 0.12
14,049.28 = 10,000 1 + 0.12
37,793.28

TOTAL

= (1 + )

1+ (+1) 1

=10,000

1+0.12 (3+1) 1
0.12

1
2
3

10,000 = 37,793.28

Amount of an annuity due


=
=
=
=

1+

(+1)

1+

(+1)

1+

(+1)

1+

(+1)

(1 + )

1+ 1
=
(1 + )

= (1 + )

Relationship between and


- Same as relationship between and

= (1 + 1)

= (1 + 1)

= (1 + 1)

= (1 + 1)

Exercises on determining present value and


amount of annuity due

Activity 3.6, No.1a, p. 145


Given: R= 4,350; j=12%; m=12
t=2yrs & 4 mos
= (1 + )
1 1+
=

= 4,350

(1 + )

4
(2
0.12
12x12)
1+ 12
0.12
12

=106,834.29

.12
1 + 12

Activity 3.6, No.1a, p. 145


Given: R= 4,350; j=12%; m=12
t=2yrs & 4 mos
= (1 + )
1+ 1
=
(1 + )

= 4,350

4
(2
0.12
12x12)
1+ 12
1
0.12
12

= 141,159.19

.12
1 + 12

Activity 3.6, No.1b, p. 145


Given: R= 4,350; j=16%; m=12
t=4yrs & 1 mo
= (1 + )
1 1+
=

= 4,350

(1 + )

1
(4
0.16
12x12)
1+ 12
0.16
12

=157,841.77

.16
1 + 12

Activity 3.6, No.1b, p. 145


Given: R= 4,350; j=16%; m=12
t=4yrs & 1 mo
= (1 + )
1+ 1
=
(1 + )

= 4,350

1
(4
0.16
12x12)
1+ 12
1
0.16
12

= 302,055.03

.16
1 + 12

Exercises on determining the remaining liability,


amount of deposit, and periodic payment

Activity 3.7, No.1a, p. 147


Given: R= 6,000 (beg. of each month);
j=15%; m=4
t=3 yrs & 3 mo
a. Original size of the debt
= (1 + )
1 1 +
=
(1 + )

0.15
1 1+
4
= 6,000
0.15
4
=63,136.16

3
(312x4)

0.15
1+
4

Activity 3.7, No.1b, p. 147


Given: R= 6,000 (beg. of each month);
j=15%; m=4
3
t=3 yrs & 3 mo; n=tm= 3 x4=13
12
b. Remaining liability just before the 4th pmt.
1 1 + ()
= +

= 6,000 + 6,000

=51,124.60

0.15 (134)
1+
4
0.15
4

Activity 3.7, No.1c, p. 147


Given: R= 6,000 (beg. of each month);
j=15%; m=4
3
t=3 yrs & 3 mo; n=tm= 3 x4=13
12
c. Remaining liability just after the 7th pmt.
1 1 + ()
=

7 = 6,000

=31,710.43

0.15 (137)
1+
4
0.15
4

Activity 3.7, No.2a, p. 147


Given: R= 25,000 (beg. of each 6 months);
j=5%; m=2
t=10 years
a. How much is the fund just after the 8th deposit
1+ 1
=

0.05 8
1+ 2
1
8 = 25,000
0.05
2
=218,402.90

Activity 3.7, No.2a, p. 147


Given: R= 25,000 (beg. of each 6 months);
j=5%; m=2
t=10 years
a. How much is the fund just after the 8th deposit
ALTERNATIVE SOLUTION
7 = (1 + )
1+ 1
=
(1 + )

= 25,000

0.05 7
1+
1
2
0.05
2

1+

0.05
2

= 193402.8975
8 = 7 + R = 193402.8975 + 25,000 = 218,402.90

Activity 3.7, No.2b, p. 147


Given: R= 25,000 (beg. of each 6 months);
j=5%; m=2
t=10 years
b. How much is the fund just after the last 25,000
deposit (10x2=20th deposit)
1+ 1
=

20
0.05
1+ 2
1
20 = 25,000
0.05
2
=638,616.44

Activity 3.7, No.2c, p. 147


Given: R= 25,000 (beg. of each 6 months);
j=5%; m=2
t=10 years
c. How much is the fund at the end of 10 years
= (1 + )
1+ 1
=
(1 + )

= 25,000

0.05 (10x2)
1+ 2
1
0.05
2

= 654,581.85

0.05
1+ 2

Determining period payment

Determining period payment

Activity 3.7, No.3, p. 148


Given: = 2,000,000
j=16%; m=1
t=15 years
Required: R (annual payment)

=
1 1 + (1 + )

0.16
1
0.16 15
0.16
1+ 1
1+ 1

2,000,00

= 309,237.11

Activity 3.7, No.4, p. 148


Given: = 300,000
j=5%; m=2
t=2 years
Required: R (semi-annual payment)

=
1 + 1 (1 + )

300,000

0.05
2

0.05 (22)
1+ 2
1

= 70,483.28

0.05

1+ 2

Determining time (t)

Determining time (t)

Self-Check Exercise 3.9, No.1, p. 122


Given: = 5,000
j=5.75%; m=4
=150,000
Required: t

log 1 +
(1 + )
=
m log(1 + )
0.0575
4
log 1+
0.0575
5,000(1+
)
4
0.0575
4 log(1+
)
4
150,000

= 6.2054 or 6 yrs. and 3 mos.

Self-Check Exercise 3.9, No.2a, p. 123


Given: = 100,000
j =17.25%; m=2
=600,000
Required: t

log 1
(1 + )
=
log(1 + )
log

0.1725
2
1
0.1725
100,000(1+
)
2
0.1725
log(1+
)
2
600,000

= 7.82 = 7 full payments

Self-Check Exercise 3.9, No.2b, p. 123


Given: = 100,000
j=17.25%; m=2
=600,000
Required: the amount to be paid on the last
payment date
Equation of values:
.
+

600,000=100,000+100,000
.

X=

600,000 100,000 , .
+

.
+ +

= , .

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