Q2 W3 Simple Annuity

Annuities
Annuity – a sequence of payments made at

an equal (fixed) intervals or periods of time.
Payment Interval – the time between
successive payments.
Time of an annuity (t)– the time between
the first payment interval and the last
payment interval.
Regular or Periodic payment (R) – the
amount of each payment
Amount (Future Value) of an Annuity (F)–

sum of future values of all payments to be
made during the entire term of annuity.
Present value of an Annuity (P)– sum of

present values of all payments to be made
during the entire term of annuity.
Annuties may be classified in
different ways, as follows:
Annuities
According to Simple Annuity General Annuity
payment interval
and interest
period
According to time Ordinary Annuity Annuity Due
of payment
According to Annuity Certain Contingent

duration Annuity
Annuities
According to Simple Annuity General Annuity
payment An annuity where An annuity where
interval and the payment the payment
interest period interval is the interval is not the
same as the same as the
interest period interest period
Example Installment Installment

payment for an payment for an
appliance at the appliance at the
end of each month end of each month
with interest with interest
compounded compounded
monthly annually
Annuities
According to Ordinary Annuity Annuity Due
time of (Annuity Immediate) A type of annuity in
payment A type of annuity which the
in which the payments are made
payment are made at the beginning of
at the end of each each payment
payment interval interval
According to Annuity Certain Contingent
duration An annuity in Annuity
which payments An annuity in which
begin and end at the payments
different times. extend over an
indefinite (or
indeterminate)
length of time.
1. Suppose that Mrs. Remoto would like to save
₱3,000 at the end of each month, for six
months in a fund that gives 9% compounded
monthly. How much is the amount or future
value of her savings after 6 months?
Given:
R (regular payment)= ₱3,000
t (term) = 6 months
i (interest rate per annum) = 0.09
m (no. of conversions per year) = 12
n (no. of payments) = 6
j (interest rate per period)= 0.09/12 = 0.0075
Find: F -amount (future value) at the end of the term

Suppose that Mrs. Remoto would like to save ₱3,000 at the
end of each month, for six months in a fund that gives 9%
compounded monthly. How much is the amount or future value
of her savings after 6 months?
(1 + 𝑗)𝑛 −1
𝐹=𝑅
𝑗
(1 + 0.0075)6 −1
𝐹 = (3000)
0.0075
𝑭 = ₱ 18, 340. 89
2. In order to save for her high school
graduation, Marie decided to save ₱200 at the
end of each month. If the bank pays 0.250%
compounded monthly, how much will her
money be at the end of 6 years?
Given:
R (regular payment)= ₱200
t (term) = 6 years
n (no. of payments) = 6(12) = 72
Find: F -amount (future value) at the end of the term

2. In order to save for her high school graduation, Marie
decided to save ₱200 at the end of each month. If the bank
pays 0.250% compounded monthly, how much will her money
be at the end of 6 years?
(1 + 𝑗)𝑛 −1
𝐹=𝑅
𝑗
(1 + 0.00020833)72 −1
𝐹 = (200)
0.00020833
𝑭 = ₱ 14, 507. 02
3. Suppose that Mrs. Remoto would like to
know the present value of her monthly deposit
of ₱3,000 when interest is 9% compounded
monthly. How much is the present value of her
savings at the end of 6 months?
Given:
R (regular payment)= ₱3,000
t (term) = 6 months
n (no. of payments) = 6
Find: P – present value

3. Suppose that Mrs. Remoto would like to know the present
value of her monthly deposit of ₱3,000 when interest is 9%
compounded monthly. How much is the present value of her
𝐹 𝒏
𝑃= F = P((𝟏 + 𝒋)
(1 + 𝑗)𝑛
18, 340. 89
𝑃=
(1 + 0.0075)6
𝑷 = ₱𝟏𝟕, 𝟓𝟑𝟔. 𝟕𝟗
3. Suppose that Mrs. Remoto would like to know the present
value of her monthly deposit of ₱3,000 when interest is 9%
compounded monthly. How much is the present value of her
1 − (1 + 𝑗)−𝑛
𝑃=R
𝑗
1 − (1 + 0.0075)−6
𝑃 = 3000
0.0075
𝑷 = ₱𝟏𝟕, 𝟓𝟑𝟔. 𝟕𝟗
Cash Value or cash price is equal to the down
payment (if there is any) plus the present value of
the installment payments.
4. Mr. Ribaya paid ₱200, 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
monthly, what is the cash price of his car?
4. Mr. Ribaya paid ₱200, 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 monthly, what is the cash price of
his car?
Given:
downpayment = ₱200, 000
R = ₱16,200
j = 0.105/12 = 0.00875
t = 5 years; n = mt = 12(5) = 60 periods
Find: cash value or cash price of the car
Cash Value = Down payment + Present Value

4. Mr. Ribaya paid ₱200, 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 monthly, what is the cash price of
his car?
Cash Value = Down payment + Present Value

1−(1+𝑗)−𝑛 1−(1+0.00875)−60
𝑃= R = 16200
𝑗 0.00875
𝑷 = ₱𝟕𝟓𝟑, 𝟕𝟎𝟐. 𝟐𝟎
Cash Value = ₱200, 000 + ₱𝟕𝟓𝟑, 𝟕𝟎𝟐. 𝟐𝟎

= ₱𝟗𝟓𝟑, 𝟕𝟎𝟐. 𝟐𝟎
The cash price of the car is ₱𝟗𝟓𝟑, 𝟕𝟎𝟐. 𝟐𝟎

FORMULAS:
Future Value of an Ordinary Annuity

(1 + 𝑗)𝑛 −1 F = P((𝟏 + 𝒋)𝒏
𝐹=𝑅
𝑗
Present Value of an Ordinary Annuity
1 − (1 + 𝑗)−𝑛 𝐹
𝑃=R 𝑃=
𝑗 (1 + 𝑗)𝑛

Q2 W3 Simple Annuity

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Annuities

Annuity – a sequence of payments made at

Amount (Future Value) of an Annuity (F)–

Present value of an Annuity (P)– sum of

According to Annuity Certain Contingent

Example Installment Installment

Find: F -amount (future value) at the end of the term

Find: F -amount (future value) at the end of the term

Find: P – present value

4. Mr. Ribaya paid ₱200, 000 as downpayment

Find: cash value or cash price of the car

Cash Value = Down payment + Present Value

Cash Value = Down payment + Present Value

Cash Value = ₱200, 000 + ₱𝟕𝟓𝟑, 𝟕𝟎𝟐. 𝟐𝟎

The cash price of the car is ₱𝟗𝟓𝟑, 𝟕𝟎𝟐. 𝟐𝟎

Future Value of an Ordinary Annuity

Present Value of an Ordinary Annuity

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