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SIMPLE
ANNUITY
✓ Define annuity payment ✓
ANNUITY
CERTAIN GENERAL
ANNUITY
ANNUITY
ANNUITY
UNCERTAIN
ORDINARY
ANNUITY ORDINARY ANNUITY ANNUITY DUE
DEFERRED
GENERAL PERPETUITIES
ANNUITY DUE
ANNUITY GENERAL
Annuity
✓An annuity is an agreement of simply a contract
which states that a person will pay another person
a sequence of equal payments at periodic intervals
for a specified time.
✓A fixed sum of money paid to someone at regular
intervals, subject to a fixed compound interest
rate.
Interval
Simple Annuity
✓interest conversion or
compounding period is EQUAL
or the SAME as the payment
interval.
General
Annuity For example:
Mr. Villamor enrolls his daughter Marianne in the
College Educational Plan (CEP). He pays Php 2,100
at the end of each three months. In turn, the CEP
deposits the payments in a bank which pays at
12% compounded monthly.
General Annuity
✓interest conversion or
compounding period is
UNEQUAL or NOT the same as
the payment interval.
1. Ordinary Annuity (����)
- annuity in which the periodic payment is made at the
end of each payment interval.
2. Annuity Due
- an annuity in which the periodic payment is made at
the beginning of each payment interval.
3. Deferred Annuity
- the periodic payment is not made at the beginning nor
at the end of each payment interval, but some later
date.
1. General Ordinary Annuity -
first payment is made at the end of every
payment interval.
3. Perpetuities
- a series of periodic payments which are to run
infinitely or forever.
Example 1: Determine if the given situations
represent simple annuity or general annuity.
ANNUITY
SIMPLE ANNUITY
CERTAIN
GENERAL ORDINARY GENERAL
ANNUITY
ANNUITY ANNUITY DUE
DEFERRED
ANNUITY GENERAL
ORDINARY ANNUITY
SIMPLE ORDINARY ANNUITY
FUTURE VALUE (FV)
��
���� = �� ∙(�� + ��) −��
��
Where FV = Future Value
P = Periodic Payment
i = interest rate per period, where
�� =��(������������ ��������)
��(����������������������
������������)
n = total no. of conversions periods in a year
�� = ����
Example 1: If you pay ₱55 at the end of each month for 30
years on account that pays interest at 25% compounded
monthly, how much money do you have after 30years?
�� + ����
���� = �� ∙
− �� ��
P = 55 t = 30
���� m = 12
0.25
�� = ������
− �� = ���� ∙
��. ����
�� +��. ���� 12 ����
n = 12(30) = 360 ������. ����
= ₱��, ������,
SIMPLE ORDINARY ANNUITY
PRESENT VALUE (PV)
−��
���� =��[�� − (�� + ��) ]
��
Where PV = Present Value
P = Periodic Payment
i = interest rate per period, where
�� =��(������������ ��������)
��(����������������������
������������)
n = total no. of conversions periods in a year
�� = ����
Example 2: Jose borrows money to buy a motorcycle. He
will repay the loan by making monthly payment of ₱2,000
at the end of 2 years with an interest rate of 9% per year
compounded monthly. How much did Jose borrow?
��[�� −
���� =
P = 2,000 t = 2
(�� + ��)−��
] ��
����
0.09 = 24 ������
�� =
12 =
�� − ��
= ₱����,
m = 12 +��. ���� ������
n = 12(2) ��, ���� . ����
��. ���� −����
SIMPLE ANNUITY
ANNUITY
CERTAIN GENERAL
ANNUITY
ANNUITY
ANNUITY
UNCERTAIN
ORDINARY
ANNUITY ORDINARY ANNUITY ANNUITY DUE
DEFERRED
GENERAL PERPETUITIES
ANNUITY DUE
ANNUITY GENERAL
�� =��(������������ ��������)
��(����������������������
������������)
n = total no. of conversions periods in a
year �� = ����
Example 1: ₱2,000 deposited at the beginning of each quarter
for 3 years at 12% compounded quarterly. Calculate the amount
of annuity.
t=3
P = 2,000 0.12
�� =
���� ���� − ��
4���� 0.03
m=4
n = 3(4) = 12
��. ���� ∙ �� + ��. ����
���� = �� ∙�� +
��
�� − �� = ₱����,
������. ����
��∙ (�� + ��)
= ��, ������ ∙�� + ��.
SIMPLE ANNUITY DUE
PRESENT VALUE (PV)
−��
���� =��[�� − (�� + ��) ]
∙ (�� + ��)
��
Where PV = Value
P = Periodic Payment
i = interest rate per period, where
�� =��(������������ ��������)
��(����������������������
������������)
n = total no. of conversions periods in a
year �� = ����
Example 2: Liza borrows money for the renovation of her
house and repays by making yearly payments of ₱60,000 at
the beginning of each year for a period of 10 years at an interest
rate of 8% compounded annually. How much did Liza borrow?
n = 1(10) = 10
P = 60,000 ��[�� − (��
t = 10 ���� =
�� = 0.08 + ��)−��
]
1= 0.08
m=1
������. ����
��∙ (�� + ��)
����, ������ �� − �� +
=
��. ���� −����
= ₱������,