ANNUITY

ILLUSTRATION
A FATHER MAKES A SAVING OF P5,000 AT THE END OF EACH MONTH IN A BANK FOR HIS SON’S
COLLEGE EDUCATION AT 12% CONVERTED MONTHLY. HOW MUCH WOULD HE HAVE IN SIX
MONTHS?
CLASSIFICATION OF ANNUITIES
CORRESPONDENCE WITH
INTEREST PERIODS
SIMPLE ANNUITY – payment coincides with interest conversion

Rizza makes regular deposits of P30,000 at the end of every three months which earns at 6%
compounded quarterly.

GENERAL ANNUITY - payment does not coincide with interest conversion

Rizza makes regular deposits of P30,000 at the end of every three months which earns at 6%
compounded monthly.
CLASSIFICATION BY TERM
ANNUITY CERTAIN– annuity with definite beginning and ending dates

Starting on her 18th birthday, Rizza makes regular deposits of P30,000 for 4 years at the end of
every three months which earns at 6% compounded quarterly.

PERPETUITY– annuity with definite beginning and no ending date

Starting on her 18th birthday, Rizza donates P1 million to a scholarship fund that supports with
monthly stipend of P5,000 making sure that this amount comes from interest.

CONTINGENT ANNUITY– annuity with no fixed term

Rizza makes regular insurance premium of P30,000 at the end of every three months which
earns at 6% compounded monthly until she dies.
CLASSIFICATION BY PAYMENT
ORDINARY ANNUITY– annuity where payments are made at the end of each payment interval.
Starting on her 18th birthday, Rizza makes regular deposits of P30,000 for 4 years at the end of every
three months which earns at 6% compounded quarterly.
ANNUITY DUE– annuity where payments are made at the beginning of each payment interval.
Starting on her 18th birthday, Rizza makes regular deposits of P30,000 for 4 years at the beginning of
every three months which earns at 6% compounded quarterly.
DEFERRED ANNUITY– annuity where payments are made at the end of each payment interval, with first
payment on a later date.
On her 18th birthday, Rizza bought a car and make a loan where first payment is five months after then
makes regular deposits of P30,000 for 4 years at the end of every three months which earns at 6%
compounded quarterly.
ASSIGNMENT
1. SEARCH FOR THE FORMULAS FOR ORDINARY ANNUITY AND ANNUITY DUE (PV, PAYMENT, FV,
INTEREST, TIME)

2. SEARCH FOR INTEREST FACTOR TABLES (PRESENT VALUE AND FUTURE VALUE) FOR ORDINARY
ANNUITY AND ANNUITY DUE

3. SEARCH HOW TO COMPUTE PRESENT VALUE AND FUTURE VALUE OF ORDINARY ANNUITY AND
ANNUITY DUE USING BASIC CALCULATOR