Chapter 3:

Annuities with
Simple Data
Presented by:
Ms. Mikee Sim

Definition of Annuity

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
ANNUITY
CERTAIN
simply called annuity
is one in which payments
begin and end at definite
times.

CONTINGENT
ANNUITY
is a sequence of periodic
payments in which the
payments extend over an
indeterminate length of time.

1.Ordinary Annuity payments are made at the end of each period.

2.Annuity due payments are made at the beginning of each period.

3.Deferred Annuity first payment is made at some later date.

Present Value of Ordinary Annuity (A)

A = R(1+i)-1 + R(1+i)-2 + R(1+i)-3 + + R(1+i)-(n-1) + R(1+i)-n
A(1+i)-1 = R(1+i)-2 +R(1+i)-3 +R(1+i)-4 + +R(1+i)-n +R(1+i)-n-1
A A(1+i)-1 = R(1+i)-1 -R(1+i)-n-1
A[1-(1+i)-1] = R(1+i)-1 [1-(1+i)-n]

1 (1 i ) n
A R
1

(1 i ) 1
1 i

A = R(1+i)-1 [1-(1+i)-n]
[1-(1+i)-1]

1 (1 i ) n
A R

Amount of Ordinary Annuity (S)

S = R + R(1+i) + + R(1+i)n-3 + R(1+i)n-2 + R(1+i)n-1
S(1+i) = R(1+i) + R(1+i)2 + + R(1+i)n-2 +R(1+i)n-1 +R(1+i)n
S S(1+i) = R - R(1+i)n
S[1-(1+i)] = R [1-(1+i)n]

S (-i) = R [1-(1+i)n]
S (i) = R [(1+i)n-1]

S[1-(1+i)] = R [1-(1+i)n]

(1 i ) n 1
S R

Relationship between A and S

A = S(1+i)-n
S = A(1+i)n

Example 3.1
If money is worth [12%, m=12], find the present
value and the amount of an annuity of P2,000
payable
monthly
years.
Given:
j = 0.12;
t = 10;for
m 10
= 12;
R = P2,000; n = 120; i = 0.01
Required: A and S
Solution:
1 (1 0.01) 120
A 2000

0
.
01

A = P139,401.04

(1 0.01)120 1
S 2000

0
.
01

S = P460,077.38

Self-Check Exercise 3.1

Find the present value and amount of an annuity of
P13,250 payable quarterly for 2 years and 6 months at
[11%, m=4].
In order to create a fund for his forthcoming business
venture, Matthew decides to deposit P5,000 at the end of
each month. If the bank pays 4% compounded monthly on
his deposits, how much is in it at the end of 2 years?
Find the amount of a 4-year ordinary annuity whose
present value is P100,000 if money is worth [16%, m=2]?

Self-Check Exercise 3.1

Find the present value and amount of an annuity of
P13,250 payable quarterly for 2 years and 6
months
at [11%,
m=4].
Given:
j = 0.11;
t = 2.5;
m = 4; R = P13,250; n = 10; i = 0.0275
Required: A and S
Solution:
1 (1 0.0275) 10
A 13250

0
.
0275

A = P114,481.01

(1 0.0275)10 1
S 13250

0
.
0275

S = P150,159.13

Self-Check Exercise 3.1

In order to create a fund for his forthcoming business
venture, Matthew decides to deposit P5,000 at the end of
each month. If the bank pays 4% compounded monthly on
Given:
j = 0.04;how
t = 2;
m = is
12;
= P5,000;
i = 0.0033
his deposits,
much
in R
it at
the end nof=224;
years?
Required: S
Solution:
(1 0.0033) 24 1
S 5000

0
.
0033

S = P124,714.44

Self-Check Exercise 3.1

Find the amount of a 4-year ordinary annuity whose
present value is P100,000 if money is worth [16%, m=2]?
Given: j = 0.16; t = 4; m = 2; A = P100,000; n = 8; i = 0.08
Required: S
Solution:
S = A(1+i)n
S = 100,000(1+0.08)8
S = P185,093.02

Cash Value or Cash Price

Cash Price = Down Payment + A

or
CP = DP + A

Example 3.2
The buyer of a car makes a down payment of P225,000
and pays P20,794.52 at the end of each month for 5 years
to discharge all principal and interest costs at the rate 36%
compounded
monthly.j Find
thet equivalent
cash price of the
Given:
DP = P225,000;
= 0.36;
= 5; m = 12;
car.
R = P20,794.52; n = 60; i = 0.03
Required: Cash Price
Solution:
Cash Price = Down Payment + A
1 (1 0.03) 60
CP 225000 20794.52

0
.
03

CP = P800,500.06

Self-Check Exercise 3.2

A resort is acquired by Mr. Coronacion by making P5M
down payment and a sequence of P600,000 payments
made at the end of each year for 5 years. If money is worth
18% effective, find the cash price of the resort.
Mr. Enciso paid P500,000 as down payment for a piece of
property in Tagaytay. The remaining liability is to be settled
by paying P50,000 at the end of each month for 3 years. If
money is worth 15% compounded monthly, find the cash
price of the property.

Self-Check Exercise 3.2

A resort is acquired by Mr. Coronacion by making P5M
down payment and a sequence of P600,000 payments
made at the end of each year for 5 years. If money is worth
18% effective,
find the cash
pricet =
of5;the
Given:
DP = P5,000,000;
j = 0.18;
m resort.
= 1;
R = P600,000; n = 5; i = 0.18
Required: Cash Price
Solution:
Cash Price = Down Payment + A
1 (1 0.18) 5
CP 5000000 600000

0
.
18

CP = P6,876,302.61

Self-Check Exercise 3.2

Mr. Enciso paid P500,000 as down payment for a piece of
property in Tagaytay. The remaining liability is to be settled
by paying P50,000 at the end of each month for 3 years. If
money
is =worth
15% compounded
Given:
DP
P500,000;
j = 0.15; t = 3;monthly,
m = 12; find the cash
price of the property.
R = P50,000; n = 36; i = 0.0125
Required: Cash Price
Solution:
Cash Price = Down Payment + A
1 (1 0.0125) 36
CP 500000 50000

0
.
0125

CP = P1,942,363.37

Amount of an Annuity at Any Time (Sk)

(1 i ) 1
Sk R

k = number of deposits or payments made

Example 3.3
At the end of each 6 months for 7 years Mobius Strip
Corporation will deposit P50,000 in a depreciation fund to
provide for the replacement of its printing machinery at the
end of 7 years. If the fund accumulates at 8% compounded
Given:
R = P50,000;
= 0.08;
mjust
= 2;after
n = 14;
= 0.04
semi-annually,
how jmuch
is tin=it7;(a)
the ilast
deposit and
(b) just(b)
after
Required:
(a) S
S5 the 5th deposit?
Solution: (a)
(1 0.04)14 1
S 50000

0
.
04

S = P914,595.56

Example 3.3
At the end of each 6 months for 7 years Mobius Strip
Corporation will deposit P50,000 in a depreciation fund to
provide for the replacement of its printing machinery at the
end of 7 years. If the fund accumulates at 8% compounded
Given:
R = P50,000;
= 0.08;
mjust
= 2;after
n = 14;
= 0.04
semi-annually,
how jmuch
is tin=it7;(a)
the ilast
deposit and
(b) just(b)
after
Required:
(a) S
S5 the 5th deposit?
Solution: (b)
(1 0.04) 5 1
S5 50000

0
.
04

S = P270,816.13

Self-Check Exercise 3.3

If Mark deposits P3,000 at the end of each 3 months to a
bank that pays 2.5% compounded quarterly, how much is
credited to his account just after his 20th deposit?
In preparation for the college education of his son, Mr.
Yanga will deposit P2,400 at the end of each month for 5
years in a fund earning 4.5% compounded monthly. How
much is in the fund (a) just after the 15th deposit and (b) just
after the last deposit?

Self-Check Exercise 3.3

If Mark deposits P3,000 at the end of each 3 months to a
bank that pays 2.5% compounded quarterly, how much is
credited to his account just after his 20th deposit?
Given: R = P3,000; j = 0.025; m = 4; k = 20; i = 0.00625
Required: S20
Solution:
(1 0.00625) 20 1
S 20 3000

0
.
00625

S20 = P63,699.71

Self-Check Exercise 3.3

In preparation for the college education of his son, Mr.
Yanga will deposit P2,400 at the end of each month for 5
years in a fund earning 4.5% compounded monthly. How
much is in the fund (a) just after the 15th deposit and (b) just
Given:
R =last
P2,400;
j = 0.045; t = 5; m = 12; n = 60; i = 0.00375
after the
deposit?
Required: (a) S15
(b) S
Solution: (a)
(1 0.00375)15 1
S15 2400

0
.
00375

S15 = P36,960.53

Self-Check Exercise 3.3

In preparation for the college education of his son, Mr.
Yanga will deposit P2,400 at the end of each month for 5
years in a fund earning 4.5% compounded monthly. How
much is in the fund (a) just after the 15th deposit and (b) just
Given:
R =last
P2,400;
j = 0.045; t = 5; m = 12; n = 60; i = 0.00375
after the
deposit?
Required: (a) S15
(b) S
Solution: (b)
(1 0.00375) 60 1
S 2400

0
.
00375

S = P161,149.33

Remaining liability just after the kth payment

(RLk)

1 (1 i ) ( n k )
RLk R

Remaining liability just before the kth payment

(kRL)
k

RL R RLk

Example 3.4
Michael bought a laptop computer and paid P20,000 as
down payment plus P10,000 at the end of each month for a
year. If money is worth 24% converted monthly, find (a) the
cash value of the computer,(b) Michaels remaining liability
Given:
DP =his
P20,000;
R = P10,000;
t = 1;
= 12; n = 12;
i = 0.02
just after
5th installment
and (c)
hismremaining
liability
Required:
(a) CP
(c) 7RL
just before
he pays(b)
hisRL
7th5 installment.
Solution: (a)

CP DP A
1 (1.02) 12
CP 20000 10000

0
.
02

CP P125,753.41

Example 3.4
Michael bought a lap top computer and paid P20,000 as
down payment plus P10,000 at the end of each month for a
year. If money is worth 24% converted monthly, find (a) the
cash value of the computer,(b) Michaels remaining liability
Given:
DP =his
P20,000;
R = P10,000;
t = 1;
= 12; n = 12;
i = 0.02
just after
5th installment
and (c)
hismremaining
liability
Required:
(a) CP
(c) 7RL
just before
he pays(b)
hisRL
7th5 installment.
Solution: (b)

1 (1.02) (125)
RL5 10000

0
.
02

RL5 P 64,719.91

Example 3.4
Michael bought a lap top computer and paid P20,000 as
down payment plus P10,000 at the end of each month for a
year. If money is worth 24% converted monthly, find (a) the
cash value of the computer,(b) Michaels remaining liability
Given:
DP =his
P20,000;
R = P10,000;
t = 1;
= 12; n = 12;
i = 0.02
just after
5th installment
and (c)
hismremaining
liability
Required:
(a) CP
(c) 7RL
just before
he pays(b)
hisRL
7th5 installment.
Solution: (c)
7

RL R RL 7

1 (1.02) (127 )
7 RL 10000 10000

0.02

RL P57,134.60

Self-Check Exercise 3.4

A flat screen TV can be purchased with payments of
P12,500 at the end of each month for 2 years. If money is
worth 18% compounded monthly, find (a) the cash price;
(b) the remaining liability just after the 7th payment; (c) the
remaining liability just before the 17th payment.
In return for a loan, Mr. Domingo promises to pay P15,000
at the end of each 3 months for two years. If money is
worth 10% converted quarterly, find (a) the principal
borrowed; (b) his remaining liability just before his 3rd
payment; (c) his remaining liability just after the 5th
payment.

Self-Check Exercise 3.4

A flat screen TV can be purchased with payments of
P12,500 at the end of each month for 2 years. If money is
worth 18% compounded monthly, find (a) the cash price;
(b) the remaining liability just after the 7th payment; (c) the
th m = 12; n = 24; i = 0.015
Given:
DP = 0;
R = P12,500;
t = 2;the
j = 17
0.18;
remaining
liability
just before
payment.
Required: (a) CP

(b) RL7

(c) 17RL

Solution: (a)

CP DP A
1 (1.015) 24
CP 0 12500

0
.
015

CP P 250,380.07

Self-Check Exercise 3.4

A flat screen TV can be purchased with payments of
P12,500 at the end of each month for 2 years. If money is
worth 18% compounded monthly, find (a) the cash price;
(b) the remaining liability just after the 7th payment; (c) the
th m = 12; n = 24; i = 0.015
Given:
DP = 0;
R = P12,500;
t = 2;the
j = 17
0.18;
remaining
liability
just before
payment.
Required: (a) CP

(b) RL7

(c) 17RL

Solution: (b)

1 (1.015) ( 247 )
RL 7 12500

0
.
015

RL 7 P186,345.62

Self-Check Exercise 3.4

A flat screen TV can be purchased with payments of
P12,500 at the end of each month for 2 years. If money is
worth 18% compounded monthly, find (a) the cash price;
(b) the remaining liability just after the 7th payment; (c) the
th m = 12; n = 24; i = 0.015
Given:
DP = 0;
R = P12,500;
t = 2;the
j = 17
0.18;
remaining
liability
just before
payment.
Required: (a) CP

(b) RL7

(c) 17RL

Solution: (c)
17

RL R RL17

1 (1.015) ( 2417 )
17 RL 12500 12500

0.015

17

RL P94,977.67

Self-Check Exercise 3.4

In return for a loan, Mr. Domingo promises to pay P15,000
at the end of each 3 months for two years. If money is
worth 10% converted quarterly, find (a) the principal
borrowed; (b) his remaining liability just before his 3rd
Given:
R = P15,000;
t = 2; j = 0.10;
m = just
4; n after
= 8; i the
= 0.025
payment;
(c) his remaining
liability
5th
Required:
(a) A
(b) 3RL
(c) RL5
payment.
Solution: (a)

1 (1 0.025) 8
A 15000

0.025

A P107,552.06

Self-Check Exercise 3.4

In return for a loan, Mr. Domingo promises to pay P15,000
at the end of each 3 months for two years. If money is
worth 10% converted quarterly, find (a) the principal
borrowed; (b) his remaining liability just before his 3rd
Given:
R = P15,000;
t = 2; j = 0.10;
m = just
4; n after
= 8; i the
= 0.025
payment;
(c) his remaining
liability
5th
Required:
(a) A
(b) 3RL
(c) RL5
payment.
Solution: (b)
3

RL R RL3

1 (1.025) (83)
3 RL 15000 15000

0
.
025

RL P84,687.43

Self-Check Exercise 3.4

In return for a loan, Mr. Domingo promises to pay P15,000
at the end of each 3 months for two years. If money is
worth 10% converted quarterly, find (a) the principal
borrowed; (b) his remaining liability just before his 3rd
Given:
R = P15,000;
t = 2; j = 0.10;
m = just
4; n after
= 8; i the
= 0.025
payment;
(c) his remaining
liability
5th
Required:
(a) A
(b) 3RL
(c) RL5
payment.
Solution: (c)

1 (1.025) (85)
RL5 15000

0
.
025

RL5 P 42,840.35

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 ) 1
Si
S R
R
n
i
(1 i ) 1

Example 3.6
Mrs. Anonas acquired a loan of P50,000 from a credit union
that charges interest of 16% compounded quarterly. She
promised to settle her obligation by making quarterly
Given:
A = P50,000;
j = 0.16;
t = 3;
m = 4; npayment.
= 12; i = 0.04
payments
for 3 years.
Find her
quarterly
Required: R
Solution:

Ai
50000(0.04)
R
R
n
12
1 (1 i )
1 (1.04)
R = P5,327.61

Example 3.7
In order to create a fund for the purchase of a brand new
car, Frances will make equal monthly deposits to a bank
that pays [4%, m = 12] for 5 years. If she intends to buy a
car that
cost her P700,000,
Given:
S =will
P700,000;
j = 0.04; t =how
5; mmuch
= 12;should
n = 60;she
i = 0.0033
deposit monthly to the bank.
Required: R
Solution:

Si
700000(0.00 3 3 )
R
R
n
60
(1 i ) 1
(1 0.00 3 3 ) 1
R = P10,558.23

Self-Check Exercise 3.5

A man borrows P50,000 and agrees to discharge his
liability as to principal and interest by paying equal sums at
the end of each 6 months for 8 years. If money is worth 6
% compounded semi-annually, find his semi-annual
payment.
At the end of each year for 10 years, a corporation will
deposit equal sums in a depreciation fund to provide for the
replacement of machinery worth P500,000. If the fund
accumulates at 8% effective, how much deposit must be
made?

Self-Check Exercise 3.5

A man borrows P50,000 and agrees to discharge his
liability as to principal and interest by paying equal sums at
the end of each 6 months for 8 years. If money is worth 6
% compounded
semi-annually,
Given:
A = P50,000;
j = 0.065; t =find
8; mhis
= semi-annual
2; n = 16; i = 0.0325
payment.
Required: R
Solution:

Ai
50000(0.0325)
R
R
n
16
1 (1 i )
1 (1.0325)
R = P4,057.01

Self-Check Exercise 3.5

At the end of each year for 10 years, a corporation will
deposit equal sums in a depreciation fund to provide for the
replacement of machinery worth P500,000. If the fund
accumulates
at 8% effective,
much
must
Given:
S = P500,000;
j = 0.08; thow
= 10;
m = deposit
1; n = 10;
i = be
0.08
made?
Required: R
Solution:

Si
500000(0.08)
R
R
n
10
(1 i ) 1
(1 0.08) 1
R = P34,514.74

Solving for time t given the Present Value A

1 (1 i )
A R

Ai
Ai

log 1
log 1
R
R

n
t
log(1 i )
m log(1 i )
n

Solving for time t given the Amount S

(1 i ) 1
S R

Si
Si

log 1
log 1
R
R

n
t
log(1 i )
m log(1 i )
n

Example 3.8
A fund of P900,000 is needed for the expansion of a house.
To provide for this, the owner of the house will place
P10,000 at the end of each month in an investment that
pays [16%, m = 12]. (a) When will the fund accumulate to
at least P900,000? (b) How many full investments of
P10,000 are required? (c) How much must be added to the
accumulated
investment
on the lastj =month
the
Given:
S = P900,000;
R = P10,000;
0.16; to
m complete
= 12; i = 0.0133
P900,000 needed for the expansion of the house? (d) How
much must be added to the last regular deposit of P10,000
to complete the P900,000 on that date?

Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

i = 0.0133
Required:
(a)n
(b)Number of full investments of P10,000
(c)The amount of money that must be deposited on the last
month to complete the P900,000 needed for the repair of
the house
(d)The amount of money that must be added to the last
regular deposit to complete the P900,000 on that date

Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

i = 0.0133
Solution:
(a)n

Si
log 1
R

log(1 i )
n 59.53

0.04
900000

1
10000

log

0.04
log 1

Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

i = 0.0133
Solution:
(b) Number of full investments of P10,000
The integral part of n is 59, thus the number of full payments
is 59.

Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

i = 0.0133
Solution:
(c) The amount of money that must be deposited on the last month to complete
the P900,000 needed for the repair of the house

Let x be the amount needed to complete the P900,000 on the 60 th month.

0.04
S59 1
x 900000
3

59

0.04
1
1
0.04
3

10000
1
x 900000
0.04

Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

i = 0.0133
Solution:
(c) The amount of money that must be deposited on the last month to complete
the P900,000 needed for the repair of the house

Let x be the amount needed to complete the P900,000 on the 60 th month.

0.04

888508.38 1
x 900000
3

900355.16 x 900000
x 900000 900355.16
x P355.16

Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

i = 0.0133
Solution:
(d) The amount of money that must be added to the last
regular deposit to complete the P900,000 on that date

S59 x 900000
888508.38 x 900000
x 900000 888508.38
x P11491 .62