ANNUITY

Engr. Jordan Ronquillo

OBJECTIVES:

• Define annuity, present worth and future worth

• Differentiate the type of annuity
• Identify how compound interest is related to
annuity
• Solve problems on different types of annuity
 What is Annuity?

Annuity is defined as a series of equal payments occurring at

equal interval of time.

When an annuity has a fixed time span, it is known as annuity

certain.
 Types of Annuity

1. Ordinary Annuity
2. Annuity Due
3. Deferred Annuity
4. Perpetuity
 Ordinary Annuity

It is a type of annuity where the payments are made at the end

of each period beginning from the first period.
 Ordinary Annuity

From the cash flow diagram shown above, the future amount F is
the sum of payments starting from the end of the first period to the
end of the nth period. Observe that the total number of payments
is n and the total number of compounding periods is also n. Thus, in
ordinary annuity, the number of payments and the number of
compounding periods are equal.
 Ordinary Annuity

Future amount of ordinary annuity, F

Where:

i = interest per period

n = number of periods
A = uniform payment
= uniform series compound amount factor
 Ordinary Annuity

Present amount of ordinary annuity, P

Where:

i = interest per period

n = number of periods
A = uniform payment
= uniform series present worth factor
 Annuity Due

It is a type of annuity where the payments are made at the

beginning of each period starting from the first period.
 Annuity Due

P=A (

F=A (𝑭𝒖𝒕𝒖𝒓𝒆 𝑨𝒎𝒐𝒖𝒏𝒕 𝒐𝒇 𝑨𝒏𝒏𝒖𝒊𝒕𝒚 𝑫𝒖𝒆)

Where:

P = present amount
F = Future amount
i = interest rate
A = annuity
n = no. of interest periods
 PROBLEMS
1. What is the present worth of a 3 years annuity paying Php 3,000 at the end of
each year, with interest at 8% compounded annually?

Given:

A = Php 3,000
i = 8% = 0.08
n = 3 yrs

Required:

P, present worth
Solution:

731. 29 ans
 PROBLEMS
2. Mr. Ricardo Dalisay purchased on monthly installment a Php 100,000 worth of
land. The interest rate is 12% nominal and payable in 20 years. What is the
monthly amortization?

Given:

P = Php 100,000
i = 12% (Monthly) = 0.12/12 = 0.01
n = (20 x 12) = 240 periods

Required:

A, monthly amortizations
Solution:

A ans
 PROBLEMS
3. What is the accumulated amount of the five year annuity paying Php 6,000 at
the end of each year, with interest at 15% compounded annually?

Given:

A = Php 6,000
i = 15% (annually) = 0.15
n = (5 x 1) = 5 periods

Required:

F, Future amount
Solution:

ans
 PROBLEMS
4. A person borrowed Php 500,000 at an interest rate of 18% compounded
monthly. Monthly payments of Php 12,968.31 are agreed upon. The length of the
loan in months closest to:

Given:

P = Php 500,000
A = Php 12,968.31
i = 18% (monthly) = 0.18/12 = 0.015

Required:

n, No. of periods
Solution:

ans
ANNUITY DUE
 PROBLEMS
1. Mr. Ayala borrows Php 100,000 at 10% annual interest. He must pay back the
loan over 30 years with uniform monthly payment due on the first day of each
month. What does Mr. Ayala pay each month.

Given:

P = Php 100,000
n = (30 x 12) = 360 periods
i = 10% (monthly) = 0.10/12 = 0.008333

Required:

A, monthly payments
Solution:

ans
 PROBLEMS
2. A farmer bought a tractor costing Php 25,000 payable in 10 semi-annual
payments, each installment payable at the beginning of each period. If the rate of
interest is 26% compounded semi-annually, Determine the amount of each
installment.

Given:

P = Php 25,000
n = 10 semi-annual = 10 periods
i = 26% (semi-annually) = 0.26/2 = 0.13

Required:

A, annuity
Solution:

ans
 PROBLEMS
3. A man wishes to have Php 35,000 when he retires 15 years from now. If he
can expect to receive 4% annual interest, How much he set aside in each of 15
years equal beginning of years deposit.

Given:

F = Php 35,000
n = 15 annually = 15 periods
i = 4% (annually) = 0.04

Required:

A, annuity
Solution:

ans
Next topic Deferred Annuity
Thank You