Annuities

By
Prof. Ken Lagman Yumang
Time Value of Money
Annuities

TVM by KenYu
Time Value of Money
Future Value of an Ordinary Annuity

FVn = FV of annuity at the end of nth period.

PMT = annuity payment deposited or received
at the end of each period
i = interest rate per period
n = number of periods for which annuity will last
TVM by KenYu
Time Value of Money
Future Value of an Annuity
Marinelle wants to go to graduate
school. She plans to save P5,000 each
year for five years to fund her initial
year in the graduate studies. How much
will she accumulate by the end of 5
years? Assume a prevailing bank
interest rate of 6%.
TVM by KenYu
Time Value of Money
Future Value of an Annuity Due

FVn = FV of annuity at the end of nth period.

PMT = annuity payment deposited or received
at the end of each period
i = interest rate per period
n = number of periods for which annuity will last
TVM by KenYu
Time Value of Money
Sanity Check: Future Value of an Annuity Due

Marinelle wants to go to graduate school. She plans to

save P5,000 each year for five years to fund her initial
year in the graduate studies. How much will she
accumulate by the end of 5 years? Assume a prevailing
bank interest rate of 6%. Assume further that the
savings are made at the beginning of each year.
TVM by KenYu
 Time Value of Money
Future Value: The Power of Compounding

TVM by KenYu
 Time Value of Money
The Power of Compounding (Personal Finance)

Delayed Gratification Instant Gratification

(sacrifice now, enjoy later) (enjoy now, sacrifice later)

From age 20 to 25, invest From age 26 to 35, invest

P35,000 per year with an P35,000 per year with an
annual interest rate of 12%. annual interest rate of 12%.

• How is the total cash outlay? • How is the total cash outlay?
• How much is your money by the • How much is your money by the
time you reach 35? time you reach 35?
• How much is the total return? • How much is the total return?

TVM by KenYu
 Time Value of Money
The Power of Compounding (Personal Finance)
Delayed Gratification

TVM by KenYu
 Time Value of Money
The Power of Compounding (Personal Finance)
Instant Gratification

TVM by KenYu
 Time Value of Money
The Power of Compounding (Personal Finance)

TVM by KenYu