Annuities

Ordinary Annuity
Ordinary Annuity – a type of annuity were equal payments are made
at the end of each period.

Annuity Due
Annuity Due – a type of annuity were equal payments are made at
the beginning of each period.

Deferred Annuity
Deferred Annuity – a type of annuity where the first payment is
made several periods after the beginning of annuity.
Annuities
Perpetuity
Perpetuity – a type of annuity in which payments continue
indefinitely.

Continuous Compounding for Discrete Payments

Continuous Compounding for Discrete Payments – an annuity
compounded continuously.
Ordinary Annuity
Ordinary Annuity – a type of annuity were equal payments are made
at the end of each period.
Ordinary Annuity
Ordinary Annuity
The functional symbol is called the “uniform series
present worth factor”.

The functional symbol is called the “capital recovery

factor”.
Ordinary Annuity
Where:

P = value or sum of money at present

A = series of periodic equal amount of payments
i = interest rate per interest period
n = number of interest periods/number of equal payments
P/A = uniform series present worth factor
A/P = capital recovery factor
Ordinary Annuity
Substituting from the equation of P, it becomes:
Ordinary Annuity

The functional symbol is called the “uniform series

compound amount factor”.

The functional symbol is called the “sinking fund

factor”.
Ordinary Annuity
Where:

F = value or sum of money at some future time

A = series of periodic equal amount of payments
i = interest rate per interest period
n = number of interest periods/number of equal payments
F/A = uniform series compound amount factor
A/F = sinking fund factor
Annuities
Ordinary Annuity

Example 1:
Find the annual payment to extinguish a debt of P 100,000
payable for 6 years at 12% interest annually.
Ans. P 24,322.57
Annuities
Ordinary Annuity

Example 2:
What annuity is required over 12 years to equate to a future
amount of P 200,000? i = 8%.
Ans. P 10,539.00
Annuities
Ordinary Annuity

Example 3:
Mr. Y bought a house and lot for $ 2,800,000 with a
downpayment of $ 300,000. Interest is 5% to be paid for 30
years on a monthly basis. Compute the amount of monthly
payment.
Ans. $ 13,420.54
Annuities
Ordinary Annuity

Example 4:
An annual payment is made for 10 years with an annual interest
rate of 8%. Compute the following:
(a) Uniform series present worth factor;
(b) Capital recovery factor;
(c) Uniform series compound amount factor;
(d) Sinking fund factor
Ans. (a) 6.710; (b) 0.149; (c) 14.487; (d) 0.069
Annuities
Ordinary Annuity

Example 5:
A piece of machinery can be bought for P 10,000 cash, or for P
2,000 downpayment and payments of P 750 per year for 15
years. What is the annual interest rate of the time payments?
Ans. 4.6%
Annuities
Ordinary Annuity

Example 6:
If P500.00 is invested at the end of each year for 6 years, at an
annual interest rate of 7%, what is the total peso amount
available upon the deposit of the sixth payment?
Ans. P 3,576.65