DEFERRED ANNUITY

MATH 158
MODULE 3

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At the end of the lesson, the students are expected to
 Define the Deferred Annuity ;
 Differentiate the types of deferred annuity;
 Draw the schematic diagram of the deferred annuity ;
 Identify the formula(s) needed to solve a problem on
deferred annuity;
 Determine deferred period and payment period

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Deferred Annuity

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Schematic Diagram

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deferred annuity

Investors often use deferred annuities to supplement their

other retirement income, such as Social Security.

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Mapua University – Department of Mathematics
Mapua University – Department of Mathematics
FIXED ANNUITY VARIABLE ANNUITY

money earns interest

at rates set by the the insurance company
insurance company. invests the money in
stocks, bonds or other
investments.

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 EQUITY-INDEXED ANNUITY

the interest rate is based on an outside

index, such as stock market index. The
annuity pays a base return, but it may be
higher if the index increases.

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Deferment period
the length of time from the present to the
beginning of the first payment interval
Present Value
is the sum of all the present values of the
periodic payment made after the deferred period.
Amount of deferred annuity
is the sum of all the accumulated periodic
payment made, at the end of the deferred period, up to
the end of the term of the annuity.
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AD= Present value of deferred annuity
SD= sum or amount of deferred annuity
R = periodic payment
r = rate of annuity
m = number of conversion period
i = periodic rate [ r ∕m ]
p = number of payment periods
d = number of deferred periods

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Present Value
;𝒅 ;(𝒑:𝒅)
𝟏+𝒊 − 𝟏+𝒊
𝑨𝑫 = 𝑹
𝒊

Amount of Deferred Annuity

𝟏+𝒊 𝒏−𝟏
𝑺=𝑹 −𝟏
𝒊
𝟏+𝒊 𝒏−𝟏
𝑺=𝑹
𝒊

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Periodic Payment
𝑨𝑫 𝒊
𝑹=
𝟏 + 𝒊 ;𝒅 − 𝟏 + 𝒊 ;(𝒑:𝒅)

Cash Value

𝑪𝑽 = 𝑫𝑷 + 𝑨𝑫

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 To compute for the number of deferred payment
periods d and payment period p:
1. if periodic payment is made on the succeeding year,
multiply the number of the deferred years by m.

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2. If periodic payment is due at the end of deferment
years, then multiply the number of deferred years by m
and subtract 1.

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3. If the periodic payment is due at the end of the
deferment years and last payment is due at the end of a
specified number of years following should be applied:
a. get the difference between the specified number of
years when the payment should occur and the
number of deferment years
b. multiply the deferment years by m and subtract 1
c. multiply the difference by m then add 1

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The first yearly payment is due at the end of 3 years and
the last yearly payment is due at the end of 8 years.

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1. Find the present value of a deferred annuity of
Php200 every end of six months for 4 years that is
deferred for 4 years. If money is worth 12% converted
semi annually.
Given: Required:
R=Php200 AD
m=2
r=12%
i = 6%

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DIAGRAM

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 1+𝑖 ;𝑑
− 1 + 𝑖 ;(𝑝:𝑑)
𝐴𝐷 = 𝑅
𝑖
1 + 0.06 ;8 − 1 + 0.06 ;(8:8)
𝐴𝐷 = 200
0.06
𝑨𝑫 = 𝑷𝒉𝒑𝟕𝟕𝟗. 𝟐𝟐

The present value of a deferred annuity is Php779.22

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2. Find the present value of an annuity if the first
quarterly payment of Php1,250 is made at the end of 5
years for 8 years. Money is worth 18.5% compounded
quarterly.
Given: Required:
R=Php1250 AD
𝑟 18.5
r= 18.5%, 𝑖 = = %
𝑚 4
m= 4

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Diagram

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 1+𝑖 ;𝑑
− 1 + 𝑖 ;(𝑝:𝑑)
𝐴𝐷 = 𝑅
𝑖
0.185 ;19 0.185 ;(33:19)
1+ − 1+
4 4
𝐴𝐷 = 1250
0.185
4
𝑨𝑫 = 𝑷𝒉𝒑𝟖𝟖𝟕𝟐. 𝟗𝟗𝟗 = 𝑷𝒉𝒑𝟖𝟖𝟕𝟑

The present value of a deferred annuity is Php8873

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3. If the money is worth 20% compounded quarterly,
find the present value of Php2,000 annuity every 3
months, the first of which is due at the end of 5 years
and the last at the end of 10 years.
Given:
R= Php2000
r=20%, i =5%
m=4
Required: AD

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Diagram

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 1+𝑖 ;𝑑
− 1 + 𝑖 ;(𝑝:𝑑)
𝐴𝐷 = 𝑅
𝑖
1 + 0.05 ;19 − 1 + 0.05 ;(21:19)
𝐴𝐷 = 2000
0.05
𝑨𝑫 = 𝑷𝒉𝒑𝟏𝟎𝟏𝟒𝟕. 𝟓𝟑

The present value of a deferred annuity is Php10,147.53

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4. Find the quarterly payment for 21 quarters to
discharge an obligation of Php120,000 if money is worth
4.5% compounded quarterly and the first payment is
due at the end of 3 years and 9 months.
Given:
AD=Php120000
r=4.5%
m=4
Required:
R
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Diagram

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 𝐴𝐷 𝑖
𝑅=
1 + 𝑖 ;𝑑 − 1 + 𝑖 ;(𝑝:𝑑)
0.045
120000( )
𝑅= 4
0.045 ;14 0.045 ;(21:14)
1+ − 1+
4 4
𝑹 = 𝑷𝒉𝒑𝟕𝟓𝟒𝟏. 𝟎𝟏
The quarterly payment for 21 quarters is Php7541.01

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 Deferred Annuity is one in which the first payment
is not made at the beginning nor end of the payment
interval, but at a later date.
 if periodic payment is made on the succeeding year,
multiply the number of the deferred years by m.
 If periodic payment is due at the end of deferment
years, then multiply the number of deferred years by
m and subtract 1.

Mapua University – Department of Mathematics

 A deferred annuity is a contract with an insurance
company that promises to pay the owner a regular
income, or a lump sum, at some future date.
 Investors often use deferred annuities to
supplement their other retirement income, such as
Social Security.

Mapua University – Department of Mathematics

 Wiley Pathways Business Math, by Slavin, 1st ed.
 Mathematics of Investment by William L. Hart, 5th
ed.
 Business Mathematics by Norma Lopez-Mariano,
2016 ed.
 Investment Mathematics by Win Ballada, 2016 ed.
 Mathematics of Investment Made Simple by Felina
C. Young
 Business Mathematics Comprehensive Approach by
Altares et al,
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 www.basunivesh.com- Google
 Annuity.org - Google

Mapua University – Department of Mathematics