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Deferred Annuity

Here are the solutions to the activity problems: 1. d = 6 years 2. d = 6 quarters 3. Present Value = P857,143.29 4. One-time payment = P341,667

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50 views17 pages

Deferred Annuity

Here are the solutions to the activity problems: 1. d = 6 years 2. d = 6 quarters 3. Present Value = P857,143.29 4. One-time payment = P341,667

Uploaded by

Raiden Shotgun
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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DEFERRED

ANNUITY
A. Lala wants to purchase a cellular phone. She decided to
pay monthly for 1 year starting at the end of the month.
How much is the present value of the cellular phone if his
monthly payment is P2,500 and interest is at 9%
compounded monthly?
B. Suppose Lala is considering another cellular phone that
has a different payment scheme. In this scheme, she has to
pay P2,500 monthly for 1 year starting at the end of the
fourth month. If the interest rate is also 9% compounded
monthly, how much is the present value of the cellular
phone?
Lala wants to purchase a cellular phone. She decided to pay monthly for
1 year starting at the end of the month. How much is the present value
of the cellular phone if his monthly payment is P2,500 and interest is at
9% compounded monthly?
Given: R = 2,500 Solution:
r = 0.09
t=1
m = 12
i = 0.09/12 = 0.0075 P
n = (12)(1) = 12

Find: P
Deferred Annuity is an annuity that does not
begin until a given time interval has passed.

Period of Deferral/Deferment (d) is the length


of time for which there are no payments. The
first payment is made one period after the period
of deferment.
Examples of Deferred Annuities

● A credit card company offering its clients to purchase


today but to start paying monthly with their choice of term
after 3 months.
● A real estate agent is urging a condominium unit buyer to
purchase now and start paying after 3 years when the
condominium is ready for occupancy.
● A worker who has gained extra income now and wants to
save his money so that he can withdraw his money
monthly starting on the day of his retirement from work.
A. Monthly payment of P2,500 for 1 year
starting at the end of the month.

B. Monthly payment of P2,500 for 1 year starting at the


end of the fourth month.
Find the period of deferral in each of the
following deferred annuity problem.
a) Annual payments of P8,000 for 10 years, that will start 5
years from now.
b) Quarterly payments of P5,000 for 3 years that will start two
years from now.
c) Monthly payments of P2,000 for 5 years that will start 7
months from now.
d) Semi-annual payments of P60,000 for 3 years that will start 5
years from now.
Future Value of
where
Deferred annuity F – future value
P – present value
R – regular payment or
periodic payment
Present Value of Deferred i – periodic rate; i = r/m
Annuity n – total no. of conversion
periods / payments;
n = mt
t – term in years
d – number of deferred
periods
1. Suppose Lala is considering another cellular
phone that has a different payment scheme. In this
scheme, she has to pay P2,500 monthly for 1 year
starting at the end of the fourth month. If the
interest rate is also 9% compounded monthly, how
much is the present value of the cellular phone?
1. Suppose Lala is considering another cellular phone that has a different payment scheme.
In this scheme, she has to pay P2,500 monthly for 1 year starting at the end of the fourth
month. If the interest rate is also 9% compounded monthly, how much is the present value of
the cellular phone?
Solution:
Given: R = 2,500
r = 0.09
t=1
m = 12
d=3
n = (12)(1) = 12
n+d =3+12=15
P = Php 27,953.60
Find: P Thus, the present value of the cellular
phone is Php 27,953.60
2. Find the present value of a
deferred annuity of P1,500 every
year for 8 years that is deferred 3
years if money is worth 6%
converted annually.
2. Find the present value of a deferred annuity of
P1,500 every year for 8 years that is deferred 3 years if
money is worth 6% converted annually.
Solution:

d = 3 yrs

P = Php 7,820.79
Find: P
3. A deferred annuity is purchased that will
pay P5,000 per quarter for 10 years after being
deferred for 5 years and with interest rate of
6% compounded quarterly. What is the present
value of the annuity.
3. A deferred annuity is purchased that will pay P5,000 per
quarter for 10 years after being deferred for 5 years and with
interest rate of 6% compounded quarterly. What is the present
value of the annuity. Solution:

d = (5)(4) = 20 quarters
P = Php 111,058.15
n +d= 40+20=60
Find: P
4. Find the present value of 10 semi-annual
payments of P2,000 each if the first payment
is due at the end of 3 years and money is
worth 8% compounded semi-annually.
4. Find the present value of 10 semi-annual payments of
P2,000 each if the first payment is due at the end of 3
years and money is worth 8% compounded semi-annually.

Solution:
d = 5 semi-annual periods
(first payment after 3
years or 6 semi-annual
periods) P = Php 13,333.13

Find: P
ACTIVITY 6: Deferred Annuity
1. Payments of P3,000 every 2 years for 10 years starting at the end of 6
years. Find d.
2. Quarterly payments of P7,777 for 6 years that will start at the end of 21
months. Find d.
3. Emma availed a cash loan that gave her an option to pay P10,000
monthly for 1 year. The first payment is due after 6 months. How much
is the present value of the loan if the interest is 12% converted monthly?
4. On his 40th birthday, Mr. Ramos decided to buy a pension plan. This
plan will allow him to claim P10,000 quarterly for 5 years starting 3
months after his 60th birthday. What one-time payment should he make
on his 40th birthday to pay-off this pension plan if the interest rate is 8%
compounded quarterly?

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