DEFERRED ANNUITY Sample Problem #2

A deferred annuity is one where the first payment is made several periods On the day his grandson was born, a man deposited to a trust company
after the beginning of the annuity. a sufficient amount of money so that the boy could receive five annual
payments of ₱10,000 each for his college tuition fees, starting with his 18th
birthday. Interest at the rate of 12% per annum was to be paid on all
amounts on deposit. There was also a provision that the grandson could
elect to withdraw no annual payments and receive a single lump amount
on his 25th birthday. The grandson chose this option. (a) How much did the
boy receive as the single payment? (b) How much did the grandfather
deposit?

Sample Problem #3
Sample Problem #1 Determine the current amount of money that must be invested at 10%
A boy is entitled to 10 yearly endowments of ₱30,000 each starting at the nominal interest, compounded annually, to provide an annuity of ₱10,000
end of the eleventh year from now. Using an interest rate of 8% (per year) for 15 years, starting 10 years from now. The interest rate remains
compounded annually, what is the value of these endowments now? constant over this entire period of time.
 ANNUITY DUE Sample Problem #4
An annuity due is one where the payments are made at the beginning of A man bought an equipment costing ₱60,000 payable in 12 quarterly
the period. payments, each installment payable at the beginning of each period. The
rate of interest is 24% compounded quarterly. What is the amount of each
payment?

Finding P when A is Given

Sample Problem #5
Finding F when A is Given If ₱800 is deposited in a savings account at the beginning of each year
for 12 years and the account earns 8% interest compounded annually,
what will be the balance on the account the end of the 15 years (F)?
Sample Problem #6 Sample Problem #7
Juan dela Cruz just won the lottery! The ₱20,000,000 jackpot will be paid in At an interest rate of 12%, what is the present value of an asset that
20 annual installments of ₱1,000,000 each, with the first payment to be produces ₱800 a year in perpetuity?
paid immediately. Juan’s opportunity cost of capital (interest rate) is 6%
per year. What is the present equivalent of Juan’s lottery winnings at the
time of the first payment?

Sample Problem #8
An investment costs ₱4,500 and pays ₱300 in perpetuity. What is the
interest earned on this investment?

PERPETUITY
A perpetuity is an annuity in which the payments continue indefinitely.

Sample Problem #9
The winner of a state lottery will receive ₱5,000 per week for the rest of her
life. If the winner’s interest rate is 6.5% per year compounded weekly, what
is the present worth of this jackpot?
ASSIGNMENT

1) A certain TV set is available on an easy installment plan. The down payment is

2) A house and lot is being sold and the payments are on installment basis
of ₱400,000 each year for 5 years. If the payments are to be made at the
beginning of each year, how much is the cash price of the property?
Assume money is worth 20% compounded annually.

3) A man acquires a loan of ₱500,000. he will amortize his loan by 10 annual