PRESENT AND

FUTURE VALUE
OF AN

ANNUITY
 ANNUITY
- is another common bussines practice of payment .house rental,life
insurance premium, bond dividends, installment payments, and labor
wages are forms of annuities.

- literally, annuity means payments made annually ,but it can also refers
to payments made at different segment payment periods. If equal
payments are made at equal time intervals the contract payments is said to
be a form of annuity.

JESSALYN
 ORDINARY ANNUITY

- is an annuity for which payments are

made at the end of the interest
conversion period.
RHODELYN
 FUTURE VALUE OF AN
ORDINARY ANNUITY
The future value of an annuity is the value of a group of recurring payments at a
certain date in the future, assuming a particular rate of return, or discount rate. The
higher the discount rate, the greater the annuity's future value.
FORMULA:
FV ordinary annuity = p
i

n= for periods at interest

i= per compounding period
p= is the fixed periodic payments. jessalyn
EXAMPLE 1:

Mr. Torres deposited P10,000 on September 2,

2010 and had deposited the same amount on the
same date every year until September 2, 2014 . The
bank credits 2.2% interest compounded annually to
Mr. Torres’ account on the same date. Find the future
value of Mr. Torres’ annuity .

RHODELYN
SOLUTION:

n= 5 (September 2, 2010- September 4, 2014)

i=2.2%= 0.022
p= 10,000
FV ordinary annuity = p
i
FV ordinary annuity = P 10,000
0.022
FV ordinary annuity = (P 10,000)
0.022
FV ordinary annuity =(P 10,000) (5.224893474)

FV ordinary annuity =P 52,248.93.

so the future value of MR TORRES’ annuity after 5 years is P 52,248.93.
EXAMPLE 2:
Solve for the value of P75,000 invested at the end of each month for 3
years at 2.7% compounded monthly.
SOLUTION :
p= P75,000
i= ==0.00225
n=(3)(12)=36
FV ordinary annuity = p
i
FV ordinary annuity = P 75,000
0.00225
FV ordinary annuity = 2,809,074.524
JESSALYN
 PRESENT VALUE OF AN
ORDINARY
ANNUITY
-The present value of an annuity is the current value of future
payments from an annuity, given a specified rate of return, or
discount rate. The higher the discount rate, the lower the present value
of the annuity.

FORMULA:

PV ordinary annuity = p
JESSALYN
EXAMPLE 1:

Mr. Torres wants to buy a simple ordinary annuity of

p100,000 per year for 5 years. He wants to enter a contract
with Kabaka Trust Company (KTC) and deposit a certain
amount so that later, the company will pay him p 100,000 per
year for 5 years. Suppose the KTC offered 2.2% compounded
annually, find the amount Mr.Torres should deposit to KTC.

RHODELYN
SOLUTION:

p= P100,000
n=5
i= 0.022
PV ordinary annuity =p
PV ordinary annuity =P100,000
PV ordinary annuity =P100,000

PV ordinary annuity =P468,622.3091 or 468,622.31

 ANNUITY DUE
-is an annuity for which payments are made
at the beginning of each interest conversion
period.

RHODELYN
 FUTURE VALUE OF AN ANNUITY DUE

Future value of an annuity due- is used to predict the future

value of a series of payments where the payment is made
immediately at the beginning of the payment period.

FORMULA:
FV annuity due = p (1 + i )
i jessalyn
EXAMPLE :

Mr Lopez invested p 10,000 in an annuity due on january 1, 2010

until december 31,2014 . The bank credits 2.2% interest compounded
annually to Mr. Torres account . Find the future value of Mr Torres
annuity.

SOLUTION :
n=5
i=2.2%=0.022
p= P10,000
jessalyn
FV annuity due = p (1 + i )
i
FV annuity due= P 10,000 ( 1 + 0.022)
0.022
FV annuity due= P 10,000 ( 1.022)
0.022
FV annuity due= P 10,000( 5.339841131)

FV annuity due= P 53,398.41 jessalyn

 PRESENT VALUE OF AN ANNUITY DUE

-is calculating the value at the end of the number of

periods given, using the current value of money.

FORMULA:
PV annuity due= p ( 1 + i )
rhodelyn
EXAMPLE

Ms. torres signed a lease contract with the owner of a commercial space worth P
100,000 per year for 5 years and made a first payment on January 1. Evaluate the
present value of ms. torres 5 years lease on the same day the first payment was made
assuming a 2.2 % annualy compound interest rate.

SOLUTION :

n= 5
i= 2.2%= 0.022
p= P100,000
rhodelyn
PV annuity due= p ( 1 + i )
PV annuity due= P 100,000 ( 1 + 0.022 )
PV annuity due= P 100,000 ( 1.022 )
PV annuity due= P 100,000 ( 1.022 )
PV annuity due= P 100,000(4.7893200453635)
PV annuity due= P 100,000 ( 1 + 0.022 )

PV annuity due= P 478,932.0045

 AMORTIZATION

-is the process of paying a loan and its interest through

series of regular equal payments . a loan to be paid using this
scheme is described as amortized loan.

jessalyn
FORMULA FOR FINDING PAYMENTS ON AN
AMORTIZED LOAN:

=R

R=is for amortized loan

P= interest rate
i= to be paid
n= installments
jessalyn
EXAMPLE :

An amortized car loan of p 1,000,000 for purchasing a brand new car

is granted to mr. enriquez by a bank . If the loan is to be paid in 5 years at
an annual interest rate of 12% find the monthly amortization.
SOLUTION:

The number of payments to be made is

n= 12 5 years = 60 payments.
The monthly interest rate is i= =1%=0.01
The principal is P= P1,000,000 jessalyn
=R
( P 1,000,000)= R

P1,816,696.699=R(81.66966986)

R=

R= P 22,244.45

MR. Enriquez will pay P 22,244.45 a month for 60 months

JESSALYN
 END
BY : RHODELYN BENITEZ & JESSALYN COLOMA