MIDTERM ASSIGNMENT NO.

1
Ordinary Annuity
Annuity Due
Suppose you put P250 at the beginning of every month in a savings account that credits interest at
the annual rate of 6%, but compounds it monthly. Find the amount in this account after 25 years.

• monthly payment = P250

• Annual Interest = 6%
• Years = 25
• Monthly interest = 6%/12months
• # of monthly payments = 12months * 25 years

FV Factor of Annuity Due = (1+.005)300 – 1 * (1+0.005)

0.005
= 696.4589
FV of P250 monthly payment for 25 years = P250*696.4589
= P174,114.73
You have decided to put P130 in a savings account at the end of each
month. The savings account credits interest monthly, at the annual rate
of 6%. How much money is in your account after 6 years?
• monthly payment = P130
• Annual Interest = 6%
• Years = 6
• Monthly interest = 6%/12months
• # of monthly payments = 12months * 6 years

FV Factor of Ordinary Annuity = ((1+.005)72) -1

0.005
= 86.4089
FV of P130 monthly payment for 6 years = P130*86.4089
= P11,233.16
Fred Abbott has just opened an IRA in which he plans to deposit P150 at the end of
every month. The account will compound interest monthly at the annual rate of 9%.
How much money will Fred have after 25 years in this account?
• monthly payment = P150
• Annual Interest = 9%
• Years = 25
• Monthly interest = 9%/12months
• # of monthly payments = 12months * 25 years

FV Factor of Ordinary Annuity = ((1+.0075)300) -1

0.0075
= 1,121.1219

FV of P150 monthly payment for 25 years = P150*1,121.1219

= P168,168.29
You have started a job with an annual salary of P48,000. You will get the paycheck at the end of each
month, and your deductions for taxes will be 34%. Using a discount rate of 0.8% per month, find the
present value of the take home pay for the whole year.

• monthly salary = P48000/12 = P4000

• Monthly take home pay = P4000*(1-0.34) = P2640
• Year = 1
• Monthly interest = 0.8%
• # of monthly payments = 12months

PV Factor of Ordinary Annuity = 1- (1+.008)-12

0.008
= 11.3986
PV of P2640 monthly payment for 1 year = P2640*11.3986
= P30,092.30
Suppose you want to accumulate P10,000 for a down payment for a house. You will
deposit P400 at the beginning of every month in an account that credits interest
monthly at the rate of 0.6% per month. How long will it take you to achieve your
goal?
• monthly payment = P400
• Year = ?
• Monthly interest = 0.6%
• # of monthly payments = ?
• Future Value = P10,000

P10,000 = P400(1.006)n + P400(1.006)n-1 + P400(1.006)n-2 + … + P400(1.006)

P10,000 = P400(1.006)n * (1-1/1.006n)

1- 1/1.006
P10,000(1- 1/1.006) = P400(1.006)n – P400
59.6421 = P400(1.006)n – P400
459.6421 = P400(1.006)n
1.149105368 = 1.006n
n ln(1.006) = ln(1.1491)
n = ln(1.1491)/ ln(1.006)
n = 23.2325 or approximately 23 months
James Earl has decided to save a million pesos by depositing P50,000 at the
beginning of each year in an account that pays interest at the rate of 10%,
compounded annually. How long will it take him to reach his objective?
• annual payment = P50,000
• Year = ?
• Monthly interest = 10%
• # of annual payments = ?
• Future Value = P1,000,000

P1,000,000 = P50,000(1.10)n + P50,000 (1.10)n-1 + P50,000 (1.10)n-2 + … + P50,000 (1.10)

P1,000,000 = P50,000(1.10)n * (1-1/1.10n)

1- 1/1.10
P1,000,000(1- 1/1.10) = P50,000(1.10)n – P50,000
P90,909.09091 = P50,000(1.10)n – P50,000
P140,909.0909 = P50,000(1.10)n
2.8181 = 1.10n
n ln(1.10) = ln(2.8181)
n = ln(2.8181)/ ln(1.10)
n = 10.8704 or 11 years
Suppose you want to accumulate P25,000 as down payment on a house and the
best you can do is to put aside P200 a month. If you deposit this amount at the
beginning of each month in an account that credits 0.75% interest monthly, how
long will it take you to attain your goal?
• annual payment = P200
• Year = ?
• Monthly interest = .75%
• # of monthly payments = ?
• Future Value = P25,000
P25,000 = P200(1.10)n + P200(1.10)n-1 + P200(1.10)n-2 + … + P200(1.10)

P25,000 = P200(1.0075)n * (1-1/1.0075n)

1- 1/1.0075
P25,000(1- 1/1.0075) = P200(1.0075)n – P200
P186.1042184 = P200(1.0075)n – P200
P386.1042184= P200(1.0075)n
1.930521092 = 1.0075n
n ln(1.0075) = ln(1.930521092)
n = ln(1.930521092)/ ln(1.0075)
n = 88.0338 or 88 months
Suppose you are a property owner and you are collecting rent for an apartment. The
tenant has signed a one-year lease with P600 a month rent, payable in advance. Find
the present value of the lease contract if the discount rate is 12% per year.
• monthly payment = P600
• Annual Interest = 12%
• Year = 1
• Monthly interest = 12%/12months
• # of monthly payments = 12months
PV Factor of Annuity Due = (1 – (1+.01)-12) * (1+.01)
0.01
= 11.3676
PV of P600 monthly payment for 1 year = P600* 11.3676
= P6,820.58
West Bank gives consumer loans at the annual interest rate of
8.25%. Suppose you take out a P5,200 loan for 36 months,
what will your monthly payment be?
• monthly payment = ?
• Annual Interest = 8.25%
• Year = 3 yrs
• Monthly interest = 8.25%/12months
• # of monthly payments = 36 months
PV Factor of ordinary annuity = (1 – (1+.006875)-36)
0.006875
= 31.7947
monthly payment for 3 year = P5,200/31.7947
= P163.55
Bennington Company has borrowed a certain amount from the bank that it will
repay in 24 monthly installments. The bank charges 6% interest annually on this loan
and the monthly payment is P6000. Find the amount of loan.

• monthly payment = P6,000

• Annual Interest = 8.25%
• Year = 2 yrs
• Monthly interest = 6%/12months
• # of monthly payments = 24 months
PV Factor of ordinary annuity = (1 – (1+.005)-24)
0.005
= 22.5629
PV of P6000 monthly payment for 2 year = P6,000* 22.5629
= P135,377.20