SIMPLE ANNUITY

Prepared by: Teacher JE Vy

 DIFFERENT KINDS OF ANNUITIES

Ordinary
Annuity

Simple Annuity Annuity Due

Deferred
Annuity
Annuity Certain
General
Ordinary
Annuity Annuity
Annuity
Uncertain General
General Annuity Ordinary
Annuity

Perpetiuties
 ANNUITY
A fixed sum of money paid to someone
at regular intervals, subject to a fixed
compound interest rate.
 ANNUITY CERTAIN
Payable for a definite duration.
Begins and ends on a definite or
fixed date (monthly payment of car
loan).
ANNUITY UNCERTAIN
Annuity payable for an indefinite
duration (example: insurance);
dependent on some certain event.
 SIMPLE ANNUITY
Interest conversion or compounding
period is equal or the same as the
payment interval.
 GENERAL ANNUITY
Interest conversion or compounding
period is unequal or not the same as
the payment interval.
ORDINARY ANNUITY
Interest conversion or compounding
period is unequal or not the same as
the payment interval.
 ANNUITY DUE
An annuity in which the periodic
payment is made at the beginning of
each payment interval.
DEFERRED ANNUITY
The periodic payment is not made at
the beginning nor at the end of each
payment interval, but some later
date.
GENERAL ORDINARY ANNUITY

First payment is made at the end of

every payment interval.
GENERAL ANNUITY DUE
First payment is made at the
beginning of every payment interval.
 PERPETUITIES
A series of periodic payments which
are to run infinitely or forever.
 EXAMPLE 1

Payments are made at the end of each month for a loan that charges
1.05% interest compounded quarterly.

Answer: Since the payment interval at the end of the month is not
equal to the compounding interval, quarterly, the situation represents
a general annuity.
 EXAMPLE 2

A deposit of ₱ 5 500.00 was made at the end of every three months to an account that ears 5.6% interest compounded quarterly.

Answer: Since the payment interval at the end of every three months (or quarterly) is equal to the compounding interval, quarterly, the situation represents a simple
annuity.
 EXAMPLE 3
(DIFFERENCE BETWEEN ORDINARY ANNUITY AND ANNUITY DUE)

Jun’s monthly mortgage payment is ₱ 35 148.05 at the end of each

month.

Answer: because payments are made at the end of each month,

Jun’s stream of monthly mortgage payment is an ordinary annuity.
 EXAMPLE 4
(DIFFERENCE BETWEEN ORDINARY ANNUITY AND ANNUITY DUE)

The rent for the apartment is ₱ 7 000.00 and due at the

beginning of each month.

Answer: since the payment come at the beginning of each

month, the stream of rental payments is an annuity due.
 FUTURE VALUE

The future value of an annuity is the total

accumulation of the payments and interest
earned.
 PRESENT VALUE

The present value of an annuity is the

principal that must be invested today to
provide the regular payments of an annuity.
 SIMPLE ORDINARY ANNUITY
FORMULA

Future Value of Simple Ordinary Annuity Future Value of Simple Ordinary Annuity
The future value FV of a simple annuity is The future value PV of a simple annuity is

Where FV = Future Value or Amount in Where PV = Present Value or Amount

P = Periodic Payment P = Periodic Payment
= interest rate per period = interest rate per period
where where
; ;
r- annual rate, k – number of conversion periods in a r- annual rate, k – number of conversion periods in a
year year
n = total number of conversion periods n = total number of conversion periods
; t is the number of years. ; t is the number of years.