Annuity
Objectives
:
1.illustrates simple and general annuities.
2. distinguishes between simple and general
annuities
Annuity
A sequence of payments made at
equal (fixed) intervals or periods
of time.
Annuity
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v=TSc6G0VPyc0&ab_channel=AlagadNgMath
Classification of
Annuities:
1. According to payment interval and interest periods.
• Simple Annuities – an annuity where the payment
interval is the same as the interest periods.
Ex.
Mikay makes regular deposits of P30,000 at the end of
every three months which earns at 8% compounded
quarterly. Here , the deposit date (at the end of every three
months) is the same as the interest conversion period.
(quarterly)
Classification of Annuities:
• General Annuity - an annuity where the payment interval is not
the same as the interest period.
Ex.
Cristel makes regular deposits of
P30,000 at the end of every three months which earns at
compounded monthly. Here, the deposit date (at the end of
every three months) is NOT the same as the interest
conversion period.(monthly)
Classification of Annuities:
2. According to time of payment
• Ordinary Annuity(or Annuity Immediate) – a type of
annuity in which the payments are made at the end of each
payment interval.
Ex.
Telephone bills, monthly electric bills, and house rentals are
collected at the end of each month
Classification of Annuities:
• Annuity Due – a type of annuity in which the
payments are made at the beginning of each
payment interval.
Ex.
Insurance payments and health care premiums are
paid at the beginning of every month.
Classification of Annuities:
3. According to duration
• Annuity certain – an annuity in which payments begin and end
at definite times.
Ex.
Starting on her 18th birthday, Mhai makes regular deposits of
P30,000 for 4 years at the end of every three months which earns
8% compounded quarterly. Here, the beginning of the term is Mhai’s
18th birthday and the end of the term is 4 years after her 18th
birthday.
Classification of Annuities:
• Contingent annuity – an annuity in which the payments
extend over an indefinite (or indeterminate) length of time
Ex.
On his 21st birthday, Joe got himself a life insurance. He will pay
annual premiums at the end of the term of which is when he dies.
Term of an Annuity, t-time between the first
payment interval and last payment interval
Regular or Periodic payment , R – the amount of
each payment
Future Value of an annuity, F- sum of future
values of all the payments to be made during the
entire term of the annuity
Present Value of an annuity, P- sum of the values
of all payments to be made during the entire term
of the annuity.
Amount (Future Value) of ordinary annuity:
The future value F of an ordinary annuity is given by
𝑛
( 1+ 𝑗 ) − 1
𝐹 =𝑅
𝑗
Where R is the regular payment;
j is the interest rate per period;
n is the number of payments
Present value of ordinary annuity:
The present value of an ordinary annuity is given by
−𝑛
1 − ( 1+ 𝑗 )
𝑃= 𝑅
𝑗
Where R is the regular payment;
j is the interest rate per period;
n is the number of payments
1. Suppose Mrs. Remoto would like to
save P3, 000 every month in a fund
that gives 9% compounded monthly.
How much is the amount or future
value of her savings after 6 months?
2. In order to save her high school
graduation, Marie decided to save
P200 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?
3.Recall the prob
Suppose Mrs. Remoto would like to
know the present value f her monthly
deposit of P3, 000 when interest is 9%
compounded monthly. How much is the
present value of her savings at the end
of 6 months?
4. MR. Ribaya paid P200 000 as down
payment for a car. The remaining amount
is to be settled by paying P16, 200 at the
end f each month for 5 years. If interest
is 10.5% compounded monthly, what is
the cash price of his car?
5. Paolo borrowed P100 000. he agrees
to pay the principal plus interest by
paying an equal amount of money each
year for 3 years. What should be his
annual payment if interest is 8%
compounded annually?
EVALUATION
1. A sequence of
payments made at
equal time periods
2. A type of annuity in
which the payments are
made at the end of each
period
3.An annuity where
the payment interval
is not the same as the
interest period
4. An annuity where
the payment interval is
the same as the
interest period
5. An annuity in
which payments
begin and end at
definite times
6. ________is the time
between the first payment
interval and last payment
interval
7. the amount of
each payment
8. ________sum of future values of all the
payments to be made during the entire
term of the annuity
9. ______ is the sum of the
values of all payments to be
made during the entire term
of the annuity.
10. ____is the
number of payments
1. Annuity
2. Ordinary
3. General annuity
4. Simple
5. Annuity certain
Term of an Annuity, t-time between the first
payment interval and last payment interval
Regular or Periodic payment , R – the amount of
each payment
Future Value of an annuity, F- sum of future
values of all the payments to be made during the
entire term of the annuity
Present Value of an annuity, P- sum of the values
of all payments to be made during the entire term
of the annuity.
Solve the following problems:
Find the present value P and amount F of
the following ordinary annuities.
Sw.p199tg
1. Quarterly payments of
P2000 for 5 years with interest
rate of 8 % compounded
quarterly.
Find P and F
2. Semi-annual payments of
P8000 for 12 years with interest
rate of 12 % compounded semi-
annually.Find present value P and
future value F of the ff. annuities.
Find the present value and the
amount (future value) of an
ordinary annuity of P5,000 payable
semi-annually for 10 years if money
is worth 6% compounded semi-
annually.
A high school student would like to
save P50,000 for his graduation. How
much should he deposit in a savings
account every month for 5.5 years if
interest is at 0.25% compounded
monthly?10pts
Fill in the blanks.
a. A sequence of payments made at equal time periods is a/an . Answer: Annuity
b.A simple annuity in which the payments are made at the end of each period is a/an . Answer: Ordinary annuity or annuity immediate
c.Anannuitywherethepaymentintervalisnotthesameastheinterestperiodisa/an . Answer: General annuity
d. An annuity where the payment interval is the same as the interest period is a/an . Answer: Simple annuity
e. An annuity in which payments begin and end at definite times is a/an . Answer: Annuity certain
b) Solve the following problems. a. Find the present value and the amount (future value) of an ordinary annuity of P5,000 payable semi-annually for 10 years if money is worth 6% compounded semi-annua
P74,387.37, F = P134,351.87 b. To pay for his debt at 12% compounded quarterly, Ruben committed for 8 quarterly payments of P28,491.28 each. How much did he borrow? Answer: P200,000 c. A high
to save P50,000 for his graduation. How much should he deposit in a savings account every month for 5.5 years if interest is at 0.25% compounded monthly? Answer: P752.46 d. The buyer of a car pays P
P12,000 every month for 5 years. If money is 10% compounded monthly, how much is the cash price of the car? Answer: Cash price = 169 000 + 564784.43 = P733,784.43 e. A television (TV) set is for sa
on installment terms, P2,500 each month for the next 6 months at 9% compounded monthly. If you were the buyer, what would you prefer, cash or installment? Answer: If you have cash on hand, it is bette
cash since the cash price (P13,499) is lower than the cash value (P14,613.99)
Hw: p182 lesson 28 A and B only
Submitted on Wednesday (Sept 25)
Study General Annuity p183-196
