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Periodic Payment of an Ordinary

Annuity

To find periodic payment:


when amount is given:
Si
RS
1 i n 1

when present value is given:


Ai
RA
1 1 i n

Examples:
1. How much monthly deposit must be
made for 4 years in order to accumulate
P12, 500 at 6% compounded monthly?
2. Mr. Tan wants to buy a car worth
P650, 000. He can pay P250, 000 down
payment and the balance payable every
end of the month for 5 years. How much
must he pay monthly at 3% compounded
monthly?
3. Mr. Reyes wants to accumulate P797, 500
at the end of 10 years to put his son to
college. Determine the amount he would
have to invest at the end of each year at
4 compounded annually.
7 %
5
4. On April 30, 2000, Alberto invested P106,
250 at 15 3 % compounded bi monthly.
5
The investment is to be paid out in 25
equal payments at the end of each two
months starting on June 30, 2000. What is
the size of the payment and on what date is
the payment due?
Finding the Interest Rate of an
Ordinary Annuity

The formula for finding the rate of an


ordinary annuity is derived from a
quadratic equation using the given
values of n, R, S, and A.
Given the present value:
nR
n 1 i 6 n 1 i 12 1 A 0
2 2

Given the amount:


nR
n 1 i 6 n 1 i 12 1 S 0
2 2
Then use the Quadratic Formula to solve
for i:
b b 4ac
2
i
2a
NOTE: Take the positive root if A is
given in the problem and take the
negative root if S is given.

r
Since i m , then to solve for the
nominal rate we have r i m .
Examples:
1. At what rate compounded monthly is
P3, 200 the present value of an
annuity of P200 paid at the end of
each month for 1 1 years?
2
2. Payments of P500 each are made every
year. At what rate compounded
annually will these payments amount to
P10, 000 in 13 years?
Example 3: An item can be purchased for
P45,000 cash or for P10,000 down payment
and a payment of P4,500 every six months for
6 years. Find the interest rate compounded
semi-annually.
Example 4: At the end of every three months,
Mr. Magaling puts P10,500 in an investment
house. If the account amounted to
P259,940.37 at the end of 5 years, at what
rate compounded quarterly was the interest
earned?
Additional Examples:
1. A loan of P8 838.51 is to be discharged by
making 15 semiannually payments of P940
each. At what rate compounded semiannually
is the interest charged on the loan?
2. Payments of P300 each made every year. At
what rate compounded annually will these
payments amount to
P8 336.42 in 22 years?