Annuities

Prepared By:

Engr. Jordan Ronquillo

 Annuities
-Is a sequence of equal payments occurring at equal period of time.

Types of Annuities

1. Ordinary Annuity
2. Deferred Annuity
3. Annuity due
 Annuities
Ordinary Annuity

- One where equal payments are made at the end of each payment period starting
from the first period.
 Annuities
Present Worth

1+𝑖 𝑛 −1
P=A
1+𝑖 𝑛 𝑖
or
1 − 1+𝑖 −𝑛
=A
𝑖
Where:

P = value or sum of money at present

A = series of periodic, equal amounts of money
n = number of interest period
 Annuities
Future Worth

1+𝑖 𝑛 −1
F=A
𝑖

Where:

F = value or sum of money at future time

A = series of periodic, equal amounts of money
n = number of interest period
 Ordinary Annuity
1. What is the present worth of a 3 years annuity paying Php 3,000 at the end
of each year, with interest at 8% compounded annually?

Ans. P = Php 7,731.25

2. Mr. Ricardo Dalisay purchased on monthly installment a Php 100,000 worth

of land. The interest rate is 12% nominal and payable in 20 years. What is the
monthly amortization.

Ans. A = Php 1,101.08

3. What is the accumulated amount of the five year annuity paying Php 6,000
at the end of each year, with interest at 15% compounded annually?

Ans.

F = Php 40,454.29
4. A person borrowed Php 500,000 at an interest rate of 18% compounded
monthly. Monthly payments of Php 12,968.31 are agreed upon. The length of
the loan in months closest to:

Ans.

58 months.
1. Maintenance cost of an equipment is Php 20,000 for 2 years., Php 40,000
at the end of 4 years and Php 80,000 at the end of 8 years. Compute for the
semi-annual amount that be set aside for this equipment. Money worth
10% compounded annually.

2. The president of a growing engineering firm wishes to give each of 50

employees a holiday bonus. How much is needed to invest monthly for a
year at 12% nominal interest rate compounded monthly, so that each
employee will receive a Php 1,000 bonus?
3. A man paid a 10% downpayment of Php 200,000 for a house & lot and
agreed to pay the balance on monthly installments for 5 years at an interest rate
of 15% compounded monthly. What was the monthly installment in pesos?

4. Rainer Wandrew borrowed Php 50,000 from Social Security System, in the
form of calamity loan. With interest at 8% compounded quarterly payable in
equal quarterly installments for 10 years. Find the quarterly payments.
 Annuities
Deferred Annuity

- Type of annuity where the first payment does not begin until some later date in
the cash flow.
1. A house and lot can be acquired by a downpayment of Php 500,000 and a
yearly payment of Php 100,000 at the end of each year for a period of 10
years, starting at the end of 5 years from the date of purchase. If money is
worth 14% compounded annually, what is the cash price of the property?

Ans: Php 808,835.92

2. A boy is entitled to a 10 yearly endowments of Php 30,000 each starting at

the end of the eleventh year from now. Using an interest rate of 8%
compounded annually, what is the value of these endowment now?

Ans: Php 93,241

3. A man invested Php 100,000 every end of the year for 10 years, then
waited for another 10 years for his money to grow. If his investment earned
8% after tax, compounded annually, what would be the sum of his
investments and earnings at the end of the 20th year.

Ans: Php 3,127,540

 Annuities
Annuity Due

- Is one where the payments are made at the beginning of the year.
 Annuity due
1. Mr Ayala borrows Php 100,000 at 10% effective annual interest. He must
pay back the loan over 30 years with uniform monthly payment due on the
first day of each month. What does Mr. Ayala pay each month.

Ans. A = Php 870

2. A farmer bought a tractor costing Php 25,000 payable in 10 semi-annual

payments, each installment payable at the beginning of each period. If the rate
of interest is 26% compounded semi-annually, Determine the amount of each
installment.
Ans. Php 4,077.20
 Annuity due
3. A man wishes to have Php 35,000 when he retires 15 years from now. If he
can expect to receive 4% annual interest, How much he set aside in each of 15
years equal beginning of years deposit.

Ans. Php 1,680.71

PROBLEM SET
1. You need Php 4,000 per year for four years to go to college. Your father
invested Php 5,000 in 7% account for your education when you were born. If
you withdraw Php 4,000 at the end of your 17th 18th 19th and 20th birthday,
How much will be left in the account at the end of 21st year?

2. A manufacturing firm wishes to give each 80 employees a holiday bonus.

How much is needed to invest monthly for a year at 12% nominal interest rate,
compounded monthly, so that each employee will receive a Php 2,000 bonus.
3. A lathe for a machine shop costs Php 60,000 if paid in cash. On the
installment plan, a purchaser should pay Php 20,000 down payment and 10
quarterly installments, the first due at the end of the first year after purchase. If
money is worth 15% compounded quarterly, Determine the quarterly
installment.

4. A man invests Php 10,000 now for the college education of his 2 year old
son. If the fund earns 14% effective rate annually, How much will the son get
each year starting from his 18th to the 22nd birthday?
5. How much money must you invest today in order to withdraw Php 2,000
annually for 10 years if the interest rate is 9%.

6. How much must be deposited at 6% each year at the end of January, year 1,
in order to accumulate Php 5,0000 on the date of the last deposit year 6.

7. A contractor bought a concrete mixer at Php 120,000 if paid in cash. The

mixer may also be purchased by installment to be paid within 5 years. If
money is worth 8%, the amount of each annual payment, if all payments are
made at the beginning of each year is?