ANNUITY

ANNUITY

• Annuity is a series of equal cash flows occurring each

period over a range of periods. It also refers to any
terminating stream of fixed payments over a specified
period of time. These fixed payments are dictated by
payment intervals or the time between successive
payments.
 LET’S PLAY!
TWO TRUTHS AND A LIE

A) Simple Annuity is an annuity where the payment interval is the

same as the interest period.

B) General Annuity is an annuity where the payments are made at

the end of each payment interval.

C) General Ordinary Annuity is a general annuity in which periodic

payment is made at the end of the payment interval.
 LET’S PLAY!
TWO TRUTHS AND A LIE

A) Simple Annuity is an annuity where the payment interval is the

same as the interest period.

B) General Annuity is an annuity where the payments are made at

the end of each payment interval.

C) General Ordinary Annuity is a general annuity in which periodic

payment is made at the end of the payment interval.
 LET’S PLAY!
TWO TRUTHS AND A LIE

A) Annuity Due is an annuity where the payment interval is not the

same as the interest compounding period.

B) Ordinary Annuity (Annuity Immediate) is a type of annuity in which

the payments are made at the end of each payment interval.

C) General Annuity is an annuity where the payment interval is not the

same as the interest period.
 LET’S PLAY!
TWO TRUTHS AND A LIE

A) Annuity Due is an annuity where the payment interval is not the

same as the interest compounding period.

B) Ordinary Annuity (Annuity Immediate) is a type of annuity in which

the payments are made at the end of each payment interval.

C) General Annuity is an annuity where the payment interval is not the

same as the interest period.
 GENERAL ORDINARY ANNUITY

• General Annuity is an annuity where the

payment interval is not the same as the
interest compounding period.
• General Ordinary Annuity is a general
annuity in which periodic payment is made at
the end of the payment interval
 FUTURE VALUE OF A GENERAL
ORDINARY ANNUITY
• The future value F of an ordinary annuity is given by

• Where R is the regular payment;

j is the interest rate period;
m is the payment interval
t is the term of an annuity
 FUTURE VALUE OF A GENERAL
ORDINARY ANNUITY
• The formula for the future value is the same as with simple ordinary
annuity. The extra step occurs in finding j: The given interest period
must be converted to an equivalent rate per payment interval.

• Where j = the interest rate per payment interval

= the given frequency of compounding
= the indicated payment interval
r = given rate
• Connie is saving for his dream house. He
deposits PhP 25 000.00 at the end of each
month into an account that earns 5% per
year compounded monthly. Find the amount
of money in the account after 5 years.
• Connie is saving for his dream house. He
deposits PhP 25 000.00 at the end of each
month into an account that earns 5% per year
compounded semi-annually. Find the amount
of money in the account after 5 years.
• In order to save for his senior high school
graduation, Reiner decided to save 500 pesos
at the end of each month. If the bank pays
3.5% compounded quarterly, how much will
his money be at the end of 6 years?
• Jean wants to buy his own car to impress
Mikasa so he decided to start saving his
money. He deposits PhP 230 000.00 every
end of the year into an account that earns
11% per year compounded quarterly. Find the
amount after 6 years.
• Mr. Bertholdt Hoover and her wife Annie Leonhart
deposited part of their royalty in a bank at the end
of each year for 9 years. The bank paid 4% interest
compounded quarterly. If they deposited P140,000
every year, how much did they have deposited,
including the interest, after her 9th deposit?
• Connie is saving for his dream house. He
deposits PhP 75 000.00 every 3 months into
an account that earns 5% per year
compounded semi-annually. Find the amount
of money in the account after 5 years.
• How much should be invested each month in a fund that pays
5% compounded quarterly to accumulate 4 600 000 pesos in 9
years?
• Sasha is earning for her funeral service since she heard the news
that she will only live for 13 years. If she deposits 8 450 every
month on a bank that earns 9% compounded every 6 months,
how much money will her account have when the day she dies?
• Jennie started to deposit PhP 1 000 monthly in a fund that pays
6% compounded quarterly. How much will be in the fund after 15
years?
• Eren and Zeke are twins. After their college graduation
and being finally able to get a good job, they plan for
retirement as follows.
- Starting at age 24, Eren deposits P10 000.00 at the
end of each month for 36 years.
- Starting at age 42, Zeke deposits P20 000.00 every 3
months for 18 years.
• Who will have the greater amount at retirement if both
annuities earn 13% per year compounded annually?
• How much should be invested in a fund
each year paying 8% compounded
monthly to accumulate 1 500 000 pesos in
5 years?
 PRESENT VALUE OF A GENERAL
ORDINARY ANNUITY
• The present value P of an ordinary annuity is given by

• Where R is the regular payment;

j is the interest rate period;
m is the payment interval
t is the term of an annuity
 PRESENT VALUE OF A GENERAL
ORDINARY ANNUITY
• The formula for the present value is the same as with simple
ordinary annuity. The extra step occurs in finding j: The given
interest period must be converted to an equivalent rate per payment
interval.

• Where j = the interest rate per payment interval

= the given frequency of compounding
= the indicated payment interval
r = given rate
• Mr. Ribaya paid P200 000 as downpayment
for a car. The remaining amount is to be
settled by paying 16,200 at the end of each
month for 5 years. If interest is 10.5%
compounded quarterly, what is the cash price
of his car?
• Mrs. Smith wishes to sell her house and lot. Mr. Galang
is offering 1.4 million cash, while Mr. Valdez is offering
a downpayment of PhP 250 000.00 and monthly
periodic payments of PhP 25 000.00 at the end of each
month for 5 years. Which of the offers should Mrs.
Smith accept if money can be invested at 9%
compounded semi-annualy?
• Kuya Jepoy bought a jeepney of which he
paid in P50 000 downpayment and 10 000
pesos every month for 10 years. If money
is 8% compounded quarterly, how much is
the cash value of Kuya Jepoy’s jeepney?
• Delilah borrowed PhP 100 000.00 She agrees
to pay the principal plus interest by paying
an equal amount of money each year for 3
years. What should be her annual payment if
the interest is 8% compounded monthly?
• Ms. Nakiri wants to buy a simple ordinary annuity of
P100,000 per year for 5 years. He wants to enter a
certain contract with Totsuki Trust Company(TTC) and
deposited a certain amount so that later, the company
will pay him P100,000 every three months for 5 years.
Suppose the TTC offered 2.2% compounded annually,
find the amount Ms. Nakiri should deposit to TTC.
• A loan of 50 000 is payable in 3 years. To
repay the loan, the debtor must pay an
amount every three months with an interest
rate of 6% compounded semi – annually.
How much should he pay every 6 months?
• How much is the monthly amortization on
an automobile loan of P900 000 to be
amortized over a five – year period at a
rate of 9.5% compounded quarterly?
• Find the present value and the future value
of P5 000 payable semi – annually for 10
years if money is worth 6% compounded
annually.
1. How much should be invested in a fund each month paying 5% compounded
quarterly to accumulate 2 600 000 pesos in 7 years?
2. Mr. Willy Tybur bought a brand new car in installment basis. He paid 500 000
as downpayment and will be paying 23,700 every three months for 6 years
to settle her balance. What is the cash price of the car if the interest is
12.26% compounded monthly?
3. Sasha is earning for her funeral service since she heard the news that she
will only live for 13 years. If she deposits 26 000 every month on a bank that
earns 11% compounded quarterly, how much money will her account have
when the day she dies?
4. An appliance is for sale at either (a) P15 999 cash or (b) on terms, 1499
each month for the next 12 months, Money is 9% compounded quarterly.
Which is lower, the cash price or the present value of the installment terms?
5. Find the present value and the future value of quarterly payments of P2 000
for 5 years with interest rate of 8% compounded semi-annually.
• A sala set is for sale on monthly installment of PhP 2950 for 6 months at
12% compounded semi – annually. How much is the value of the sala
set?
• Due to the break-up with her boyfriend, Kathryn decided to have a
vacation in South Korea. She borrows an amount with an annual
payment of ₱8 000 at the end of each quarter for 3 years with an interest
rate of 3.5% compounded monthly. How much is the present value of
Kathryn’s loan?
• Daniel purchased a refrigerator at K-Servico. His payments of ₱8,000.00
are made at the end of every six months for two years for a loan that
charges 1.7% interest compounded semi – annually. What is the present
value of the refrigerator?