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ANNUITY
-is a series of equal payments made at equal periods
of time.

TYPES OF ANNUITIES
1. Ordinary annuity
2. Deferred annuity
3. Annuity due
4. Perpetuity

Engineering Economics by rnavarro jr DEPARTMENT OF MECHANICAL ENGINEERING

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1. ORDINARY ANNUITY
- is one where equal payments are made at the end of
each payment period starting from the first period.

Engineering Economics by rnavarro jr DEPARTMENT OF MECHANICAL ENGINEERING

 CEBU INSTITUTE OF TECHNOLOGY - UNIVERSITY
2. DEFERRED ANNUITY
- it is also an ordinary annuity but the payment of the first
amount is deferred a certain number of periods after the
first.

Engineering Economics by rnavarro jr DEPARTMENT OF MECHANICAL ENGINEERING

 CEBU INSTITUTE OF TECHNOLOGY - UNIVERSITY
3. ANNUITY DUE
- is one where payments are made at the start of each
period, beginning from the first period.

Engineering Economics by rnavarro jr DEPARTMENT OF MECHANICAL ENGINEERING

 CEBU INSTITUTE OF TECHNOLOGY - UNIVERSITY
4. PERPETUITY
- is one where the payment periods extend forever or in
which the periodic payments continue indefinitely.

Engineering Economics by rnavarro jr DEPARTMENT OF MECHANICAL ENGINEERING

 CEBU INSTITUTE OF TECHNOLOGY - UNIVERSITY

Example:
An employee has obtained a loan of P1,000,000 at the rate of
6% compounded monthly to build a house. How much must
he pay monthly to amortize the loan within a period of 10
years?

Engineering Economics by rnavarro jr DEPARTMENT OF MECHANICAL ENGINEERING

 CEBU INSTITUTE OF TECHNOLOGY - UNIVERSITY

Example:
A father wishes to prepare the future of his 10 year old son.
He plans to save monthly so that by the time his son becomes
18 the later could have P 500,000.00. If money earns at an
effective rate of interest of 5%, determine the monthly savings.
The father plans to start saving 6 months from now.

Engineering Economics by rnavarro jr DEPARTMENT OF MECHANICAL ENGINEERING

 CEBU INSTITUTE OF TECHNOLOGY - UNIVERSITY

Example:
A couple decided to save for the college education of their two
year old son. What annual deposit should they make on each
birthday from the third to the 16th, so that their son will be able
to withdraw P150,000 on each birthday from the 17th to the
20th? Money is worth 4% compounded annually.

Engineering Economics by rnavarro jr DEPARTMENT OF MECHANICAL ENGINEERING