MATHEMATICS

DEFERRED ANNUITIES
[ ( )
]
−𝑚𝑡
𝑖
1 − 1+
( ) 𝑚
− 𝑘𝑚
𝑖
𝑃= 𝑅 1+
𝑚 𝑖
𝑚

[ ( )
]
𝑖 𝑚𝑡
1+ −1
( ) 𝑚
𝑘𝑚
𝑖
𝐴= 𝑅 1+
𝑚 𝑖
𝑚
 MATHEMATICS
DEFERRED ANNUITIES
[ ( )
]
−𝑚𝑡
𝑖
1 − 1+
( ) 𝑚
− 𝑘𝑚
𝑖
𝑃= 𝑅 1+
𝑚 𝑖
𝑚

[ ( )
]
𝑖 𝑚𝑡
1+ −1
( ) 𝑚
𝑘𝑚
𝑖
𝐴= 𝑅 1+
𝑚 𝑖
𝑚
 MATHEMATICS
DEFERRED ANNUITIES
[ ( )
]
−𝑚𝑡
𝑖
1 − 1+
( ) 𝑚
− 𝑘𝑚
𝑖
𝑃= 𝑅 1+
𝑚 𝑖
𝑚

[ ( )
]
𝑖 𝑚𝑡
1+ −1
( ) 𝑚
𝑘𝑚
𝑖
𝐴= 𝑅 1+
𝑚 𝑖
𝑚
Deferred Annuities
There are annuities whose payments do not
necessarily start at the beginning or at the end of the
next compounding period.
A deferred annuity is a kind of annuity whose
payments (or deposits) start in more than one period
from the present.
The period of deferral is the time between the
purchase of an annuity and the start of the payments
for the deferred annuity.
Example 1
A certain fund is to be established today in order to pay
for the P5,000 worth of monthly rent for a commercial
space. If the payments for rent will start next year and the
fund must be sufficient to pay for the monthly rental for 2
years, how much must be deposited at 2.5% interest
compounded monthly?
Given:
R = 5000 m = 12
t = 2 years i = 2.5% or 0.025
k = 1 year P = ?
 [ ]
Solution:
1 − 1+ ( )
𝑖 − 𝑚𝑡

( ) 𝑚
− 𝑘𝑚
R = 5000 𝑃=𝑅 1+
𝑖
𝑚 𝑖
m = 12 𝑚

[ ]
t = 2 years
( )
−(12) (2)
0.025
i = 2.5% or 0.025 1 − 1+
( ) 12
−(1) (12)
0.025
𝑃 =5000 1+
k = 1 year 12 0.025
12

𝑃 =(4876.6763 )(23. 38612786 )

𝑃=Php 114,046.58
Example 2
Find the present value of a 2-year deferred annuity at 4%
interest compounded quarterly with payments of P1,000
made every quarter for 3 years.
Given:
R = 1000
m=4
t = 3 years
i = 4% or 0.04
k = 2 years
P=?
 [ ]
Solution:
( )
− 𝑚𝑡
𝑖
1 − 1+
( ) 𝑚
− 𝑘𝑚
R = 1000 𝑃=𝑅 1+
𝑖
𝑚 𝑖
m=4 𝑚

[ ]
t = 3 years
( )
−(4 ) (3)
0.04
1− 1+
i = 4% or 0.04
( ) 4
−( 2)( 4 )
0.04
𝑃 =1000 1 +
k = 2 years 4 0.04
4

𝑃 =(923.48322 )(11. 25507747 )

𝑃=Php 10,393.88
Example 3
Find the future value of an annuity, 2.5 years after the
last payment is made, at 5% interest semi-annual payments
of P4,500 for 10 years.
Given:
R = 4500
m=2
t = 10 years
i = 5% or 0.05
k = 2.5 years
A=?
 [ ]
Solution:
( )
𝑚𝑡
𝑖
1+ −1
( ) 𝑚
𝑘𝑚
R = 4500 𝐴= 𝑅 1+
𝑖
𝑚 𝑖
m=2 𝑚

[ ]
t = 10 years
( )
(2) (10)
0.05
i = 5% or 0.05 1+ −1
( ) 2
( 2.5) (2)
0.05
k = 2.5 years 𝐴= 4500 1+
2 0.05
2

𝐴=(5091.336958 )(25. 54465761 )

𝐴=Php 130,056.46
Example 4
Regular yearly deposits of P10,000 are put into a fund for
20 years at 4% annual compound interest rate. If no
withdrawals are made, what is the value of the fund 10
years from the date of the last payment?
Given:
R = 10,000 m = 1
t = 20 yearsi = 4% or 0.04
k = 10 years A = ?
 [ ]
Solution:
( )
𝑚𝑡
𝑖
1+ −1
( ) 𝑚
𝑘𝑚
R = 10,000 𝐴= 𝑅 1+
𝑖
𝑚 𝑖
m=1 𝑚
t = 20 years

[ ( )
]
( 1)( 20)
0.04
i = 4% or 0.04 1+ −1
( ) 1
(10) (1 )
0.04
k = 10 years 𝐴=10,0 00 1 +
1 0.04
1

𝐴=(14,802.44285 )(29. 77807858 )

𝐴=Php 440,788.31
Practice Exercises
1. Find the present value of a 3-year deferred annuity with
regular monthly payments of P10,000 compounded at
an interest rate of 5% for 4 years.
2. Find the future value of an annuity, 2 years after the last
payment is made, at 2% interest compounded quarterly
with regular quarterly payments of P5,000 for 3 years.
Practice Exercises
3. Mang Rudy, a jeepney driver, won a local lottery game.
After reserving a portion of his winnings for his family’s
immediate expenses and renovation of their house, he is
left with P150,000. He decided to put this in an account
providing 3% interest compounded monthly. He also plans
to let the money earn for 5 years, and then make equal
withdrawals for another 5 years until all the money in the
account is depleted. How much should be his monthly
withdrawal?
Practice Exercises
4. As preparation for his retirement 20 years from now, Mr.
Hernandez agreed to pay an insurance firm P20,000 every
year until his retirement in exchange of yearly pension for
25 years. If the insurance firm put the payments in an
account providing 2.3% annual compound interest, how
much yearly pension can Mr. Hernandez receive?
Practice Exercises
5. Instead of giving monthly allowance to Carl, his parents
agreed to put an amount today in an account that gives 5%
interest compounded monthly. However, Carl has his own
savings, so he decided to make the first withdrawal six
months from now. If the account must be sufficient for Carl
to make 15 withdrawals worth P5,000 each, how much
must Carl’s parents deposit today?
Answers:
1. P = Php 373,861.34
2. A = Php 63,551.43
3. R = Php 3,130.91
4. R = Php 26,559.85
5. P = Php 70,770.15