FDNBUSM REVIEWER

Annuity is a sequence of periodic payments made at equal intervals of time and most of the time
in equal amounts.
Payment interval – time between two consecutive payments of annuity; equivalent to 1 period.
Term – starts immediately and ends on the last payment interval.
Periodic Rent or Periodic Payment (R) – size of each payment.
ANNUITY CERTAIN- simply called “annuity” and is one in which payments begin and end at
definite times.
1. Ordinary Annuity – payments are made at the end of each period.
2. 2.Annuity due – payments are made at the beginning of each period.
3. 3.Deferred Annuity – first payment is made at some later date.
CONTINGENT ANNUITY-is a sequence of periodic payments in which the payments extend
over an indeterminate length of time.
Present Value of Ordinary Annuity (A): Principal borrowed

1 − (1 + i) − n 
A = R 
 i 
Amount of Ordinary Annuity (S):

 (1 + i) n − 1
S = R 
 i 
Relationship between A and S

A = S(1+i)-n
S = A(1+i)n
Cash Value or Cash Price:

Cash Price = Down Payment + A

or
CP = DP + A
Amount of an Annuity at Any Time (Sk):

 (1 + i) k − 1
Sk = R  
 i 
k = number of deposits or payments made
-Last deposit same formula for amount of ordinary annuity
Remaining liability just after the kth payment (RLk)

1 − (1 + i) − ( n −k ) 
RLk = R  
 i 
Remaining liability just before the kth payment (kRL)

k RL = R + RLk
Periodic Payment given the Present Value A

1 − (1 + i) − n  Ai
A = R →R= −n
 i  1 − (1 + i)
Periodic Payment given the Amount S

 (1 + i) n − 1 Si
S = R →R=
 i  (1 + i ) n
−1
Solving for time t given the Present Value A

1 − (1 + i ) − n 
A = R 
 i 
 Ai   Ai 
log 1 −  log 1 − 
n=−  R
→t =−  R
log(1 + i ) m log(1 + i )
Solving for time t given the Amount S

 (1 + i ) n − 1
S = R 
 i 
 Si   Si 
log 1 +  log 1 + 
n=  R
→t =  R
log(1 + i ) m log(1 + i )