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Module 3 Annuities A. Gospel Reading - . - . - . - . B. Opening Prayer - . - . - . - . C. Lecture Lecture Contents

The document provides information about annuities including definitions of key terms like ordinary annuity and formulas. It includes examples of calculating the present worth and accumulated amount of annuities with given annual payments, interest rates, and time periods. Sample problems are worked through step-by-step including calculating the interest rate per period for a semi-annual interest rate and determining the amount of equal yearly payments to pay off a debt over 8 years at 10% interest compounded quarterly.

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Greg Garcia
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52 views

Module 3 Annuities A. Gospel Reading - . - . - . - . B. Opening Prayer - . - . - . - . C. Lecture Lecture Contents

The document provides information about annuities including definitions of key terms like ordinary annuity and formulas. It includes examples of calculating the present worth and accumulated amount of annuities with given annual payments, interest rates, and time periods. Sample problems are worked through step-by-step including calculating the interest rate per period for a semi-annual interest rate and determining the amount of equal yearly payments to pay off a debt over 8 years at 10% interest compounded quarterly.

Uploaded by

Greg Garcia
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Module 3 ANNUITIES

A. GOSPEL READING . . . . . . . .
B. OPENING PRAYER . . . . . . . .
C. LECTURE

Lecture Contents
1. Annuities
2. Ordinary Annuity
3. Formulas
4. Example Problems / Ordinary Annuity

ANNUITIES

An annuity is a series of annual payments occurring at equal periods of time.


Symbols:
P – value or sum of money at present
F – value or sum of money at some future limit
A – a series of periodic payment, equal amount of money
n – number of interest periods
i – interest rate per interest period

Ordinary Annuity

An ordinary annuity is one where the payments are made at the end of each
period. Fig. 3-1.
Also,
Example Problems.

1. What are the present worth and the accumulated amount of a 10 – year annuity
paying P10,000 at the end of each year, with interest at 15% compounded
annually?
Solution: A = P10,000 n = 10 i = 15%
P F

1 2 3 9 10
annually

A A A A A
P10,000

Solving for P:
P= n
P= A (1 + i) – 1 . or
A
i (1 + i)n
(1
P= A 1 -=( 1 + i)-n.
P
A i
(1
P = P10,000 1P-=(1 + 0.15)-10
A 0.15
(1
P = P10,000 1 -=(1.15)-10
P
A0.15
(1
P = P50,188 ans.

Solving for F:
F= A P =+ i)n – 1 .
(1
A i
(1
F = P10,000 P (1 =+ 0.15)10 – 1
A 0.15
(1
P = 10 – 1
F = P10,000 (1.15)
A 0.15
F = P203,037 (1 ans.

2. What is the present worth of P500 deposited at the end of every three months for
6 years if the interest rate is 12% compounded semi-annually?

Solution: A = P500 n=6 r = 12% m = 2 semi-annually


P F

1 2 5 6
semi-annually

A A A A A A A A AAA AA
Solving for the interest rate per quarter:

(1 + iq)4 – 1 = (1 + r/m)2 – 1

1 + iq = (1 + 0.12 / 2)2

iq = (1.06)2 – 1

iq = 0.0296 x 100%

iq = 2.96%

Solving for P: n = 4 x 6 = 24 , for quarterly

P= A P
(1 =+ i)n – 1 .
Ai (1 + i)n
(1
P = P500 P(1=+ 0.0296)24 – 1 .
A
0.0296(1 + 0.0296) 24
(1
P = P500 P =
(1.0296) 24
–1 .
A
0.0296(1.0296) 24
(1
P = P500 ( 17.0087)

P = P8,504 ans.

3. A P35,000 debt is to be paid off in eight equal yearly payments, each combining
annuity installment and interest at 10% compounded quarterly. What should be
the amount of each payment?

Solution: Solving for A:


4. Problem

5. Problem

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