General Mathematics

Annuities
Annuities

It is a sequence of equal payments made at equal periods,

usually annually, semi – annually, quarterly or at other periods

Examples of Annuities:
• monthly rental payment
• weekly wages
• periodic premiums on a life insurance policy
• periodic pensions
• periodic payments on installment purchases
• semi – annual interest payments on bonds
Types of Annuities

Simple Annuity - a type of annuity in which the payment

interval is the same as the interest conversion
period

Example: A series of regular payment of Php10 000 every month

with an interest rate of 5% compounded monthly

General Annuity- a type of annuity in which the payment

interval is NOT the same as the interest
conversion period

Example: A series of regular payment of Php10 000 every

month with an interest of 5% compounded quarterly
Annuities

Other terms
1. payment interval – the time between successive payments of an
annuity.

2. term of an annuity – the time between the first payment interval

and the last payment interval.

3. periodic payment – denoted by R, is the amount of each payment.

 Annuities
Notations:
Simple Annuity (Present and Future Values)

Present Value (A) Future Value/Amount (S)

- refers to the one time - refers to the one time payment at
payment at present equivalent the end of the term equivalent to
to the series of periodic the series of periodic payment R.
payments R.
Examples

1. At the end of every year, Mike deposits P25,000 in a bank that pays 14%
compounded annually. How much will he have in his account at the end of 15 years?
Examples

2. Mary bought a house and lot. What is the cash price of the property if she has to make
60 quarterly payments of P25,000 at 12% compounded quarterly?
Examples

3. The buyer of a lot will pay Php200,000 cash and Php15,000 at the end of every month for 15
years to settle the principal and interest charges at the rate of 8% compounded monthly.
Compute for the equivalent cash price of a lot.
Examples

4. At the end of each year for 5 years, a construction company will deposit Php25,000 in a
depreciation fund to be used for the replacement of construction equipment at the end of 5
years. If the fund accumulates at the rate of 7% annually, how much will be in the fund after
the last deposit?
Practice Exercises

1. Find the amount and present value of P150 payable every end of three months for 8 years
and 6 months, if money is worth 5% converted quarterly.

2. Archie bought a car by making a down payment of Php150,000 and periodic payments of
Php18,000 at the end of each month for 5 years to totally extinguish the car loan including
interest payments. If the interest rate is 6.5% compounded monthly, what is the equivalent
cash price of the car?

3. Delbert will deposit with a trust company a sum just enough to support his son Sebastian’s
education. The periodic payment is Php15000 every end of a month for 10 years. How much
will be in the trust fund if the deposit accumulates at the rate of 4% per annum compounded
every month?