ANNUITY

Annuity – a series of payment, deposits or withdrawal of time.

Type of annuity
i. Ordinary Annuity
 An annuity in which the interest and the payment periods are the same and
payments are made at the end of the periods.
ii. Foreborne Annuity
 An annuity in which earns interest after the last deposit of annuity is made.
iii. Other Annuity
 Other annuity include annuity due, general annuity and perpetuity.

Ordinary Annuity

Future Value of Ordinary Annuity - Sum of all its future value of the periodic payments. This is
expressed as:

( )
[ ]

Where

R = Periodic payment
i = Periodic interest rate
n = Investment period
S = Future value of annuity after interest periods

Example

1. Find the future value of the annuity and the interest earned of the given problem.
a. Afzan intends to invest RM20 every month for 5 years 6 months at 7.5% compounded
monthly.
RM1627.69; RM307.69

b. Suraya invest RM100 every two months for 20 years 5.5% compounded every two
months.
RM21699.81; RM9699.81

2. Find the amount of annuity if RM100 is paid every month for 10 years, if the interest rate is
12.5% compounded monthly.
RM23691.35; RM11691.35

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Present Value of an Annuity

Sum of all the present value of the periodic payments.

( )
[ ]

where
A= Present value of annuity after interest period

Example

1. Find thepresent value of the annuity and the interest has been earned/has to pay of the given
problem.
a. Johan saves RM300 every month for two years with money is worth 10% compounded
monthly.
RM6501.26; RM698.74

b. Fatimah has to pay for a loan RM500 every month for 20 years at 10.5% compounded
monthly.
RM50081.14; RM69918.86

2. Chun borrowed a sum of money from a bank with interest at 3% compounded monthly. He
has agreed to pay back RM300 every month for 8.5 years as the settlement of the loan. Find
the present value of the loan and the interest that Chun has to pay.
RM26980.42; RM3619.58

3. Soffiya bought a house and it was financed from ABC Bank. The bank charges 7.5%
compounded monthly for 30 years with monthly payment RM824.50. Find (i) the amount
borrowed from ABC Bank, (ii) the interest paid for the loan.
RM117918.03; RM178901.97

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Solving for R, n and i

1. Find the number of payments if the amount in the account has accumulated to RM22,218.35
if RM300 was deposited every month into an account at 3% compounded monthly.
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2. Andra borrowed RM50,000 at 15% compounded monthly for 15 years. Find his monthly
payment. If Andra would like to settle the entire loan immediately after the first 10th
payments, how much an additional payment that he have to pay?
RM699.79; RM49208.31

3. In order to start a business, Azmi borrowed RM50,000 from a bank that charges interest at
9% compounded monthly. The loan will be repaid by monthly installment for 5 years.(i) Find
the monthly payment. (ii) Calculate the total interest paid for the loan, (iii) If Azmi fails to pay
the first 3 monthly payments, how much should he pay on the 4th payment in order to keep
his payments up-to-date?
RM1037.92; RM12275.07; RM4198.61

4. Hashimi bought a house and paid a down payment of RM30,000. He took a loan that
charged interest of 6% compounded monthly. Hashimi repaid the loan in 25 years time with
monthly payment of RM980. Find (i) the cash price of the house, (ii) the total interest
charged, (iii) the outstanding balance if Hashimi decided to settle the loan immediately after
the 250th payment.
RM182102.73; RM141897.27; RM43259.93

Exercise

1. RM100 was invested at the end of every month for 70 months in an account that paid 6%
compounded monthly. After 70 months, no more deposit was made. Find the amount in the
account at the end of 100 months.
RM9705.37

2. Muthu borrowed RM50,000 from a bank for 7 years at 12% compounded monthly. (i) Find
the monthly payment; (ii) If he has not paid his first 3 monthly payments, how much should
he pay on the 4th payment to settle all the outstanding arrears? (iii) Immediately after paying
the 24th monthly payment, he wants to settle the balance of the debt with a single payment.
How much should this payment be?
RM882.64; RM3583.87; RM39679.12

3. En Basri borrowed a sum of money from AR Bank with interest at 4% compounded monthly.
He has agreed to pay back RM 777.50 every end of the month for 6.5 years as the
settlement of the loan. (i) How much was the loan? (ii) Calculate the amount of interest that
En. Basri has to pay.
RM53324.44; RM7320.56

4. RM500 was deposited every quarter into an account at 5% compounded quarterly. Find the
number of payments if the amount in the account has accumulated to RM19,525.22.
32

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5. Daud intends to buy an annuity scheme that offers an interest rate of 5% compounded
monthly. He expects to receive RM800 every month for the next six years starting a month
from the date of purchase. How much would Daud have to pay for the scheme?
RM49674.22

6. Johan saves RM250 every three months for 7 years into an account that pays 3%
compounded quarterly. (i) How much does Johann have at the end of 7 year period? (ii)
How much is the interest earned? (iii) After 7 years, no more deposit was made. Find the
amount of the account at the end of another 5 years period.
RM7757.06; RM757.06; RM9007.37

7. 10 years ago, Jenny saved RM300 every month in an account that paid interest at 3%
compounded monthly. Today she withdraws RM10000 to pay for the down payment of a
house. The balance of the house is to be borrowed from a bank that charges interest at 5%
compounded monthly. She plans to pay RM1000 every month for 20 years to settle her debt
to the bank. Find (i) the amount left in the account after the withdrawal. (ii) the amount
borrowed from the bank. (iii) the outstanding balance if she decides to settle all debts
immediately after paying the loan for twelve years.
RM31922.42; RM151525.31; RM78989.44

8. Raju started to save RM R every month at 3% compounded monthly. He withdrew RM

9. Lala borrowed RM60,000 from a bank for 10 years at 12% compounded monthly. (i) Find
the monthly payment; (ii) If he missed to pay on the 2nd, 3th and 4th of his monthly payments,
how much should he pay on the 5th payment to settle all the outstanding arrears?
RM860.83; RM3495.31

10. Emma takes a loan that charged interest at 6% compounded monthly. She repays the loan
in 7 years with monthly payment of RM758. i) Calculate the amount of the loan. Ii) if she
missed the 25th and 26th payments, how much is the outstanding balance at the end of the
27th month?
RM51887.41; RM2285.39

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