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Essentials in General Engineering and Applied Sciences
Annuity
Annuity is a series of uniform payments made at equal intervals of
time. Annuities are established as payment for a debt by a series of
equal payment at equal time intervals or as amortization. It may.
also be a substitute periodic payment for a future lump sum
payment.
Types of Annuity
1. Ordinary Annuity
2. Annuity Due
3. Deferred Annuity
4. Perpetuity
Ordinary Annuity - a type of annuity wherein the payments are
made at the end of each period starting from the first period.
O
o -
R
CashFlowDiagram
(OrdinaryAnnuity)
1 2 3 4,, (n—1) n
m m r i
A A A A A A
„ A[(l+i)n - 1]
F=--------:--------
p_ A[1 - ( 1+1) - ]
Where:
A = periodic equal payment
n = no. of periods
i = interest rate per payment
P = present worth
F = future worth
________________ [7
f
Essentials in General Engineering and Applied Sciences
Deterred Annuity - a type of annuity wherein the first payment is
made later than the first or is made several periods after the
beginning of annuity.
Cash Flow Diagram
(Deferred Annuity)
O 1
£ - J — S—32
P
l<-
n
r r m
A A A A A
> F
rn -t- n p e r i o d s
n p e r i o d s
F=
A[(l+i)n-l]
A=
A[(l+i)n-l]
i(l+i)m+n
Where:
A = periodic equal payment
n = no. of periods
i = interest rate per payment
P = present worth
F = future worth
m= no. of periods before the
beginning of the first
payment
_____________________ t ?
Annuity Due - a type of annuity wherein the payment is made at
the beginning of each period.
Cash FlowDiagram
(Annuity Due)
5 yVa . <n -----—
rT T T T T T l
A A A A A A A

- -f- -
-■3*4 F
F*
K-
n-- 1 periods

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