Business Mathematics

Deferred Annuities

13-1
 Deferred Annuity
• A deferred annuity is one in which the first
payment is made at a time later than the end
of the first payment interval.
• Time period from “now” to starting point of
term of annuity is called the period of
deferment.
• The symbol d is used to represent the
number of compounding periods in the
period of deferment.
Copyright © 2008 Pearson Education Canada 13-2
 Future Value of Deferred
Annuity
The accumulated value of periodic payments
at the end of the term of the annuity does not
affect the solution to find FV. Simple proceed
as usual to find the future value of an annuity.

13-3
 Present Value of a Deferred
Annuity

100 100 100

Step 1 - Find PV of annuity at this point.

Step 2 - Find present value of the PV of the
quantity found in Step 1 (single lump sum).

(continued) Copyright © 2008 Pearson Education Canada 13-4

Finding the PV of a Deferred
Annuity
Assume the payments on the diagram are
made at the end of the year and the rate is 6%
compounded annually.
Step 1 - Find PV of annuity of 3 payments.
100 1- (1.06) –3 = $267.30
.06

Step 2 - Find PV of the 267. 30. There are 2

periods in the period of deferment.
–2
PV = 267.30(1.06) = $237.90
13-5
13-6
13-7