ANNUITIES

Quarter 2 – Module 3
Annuity
People pay by installment such as in insurance
payments, major purchases like appliances and
property, or loan payments.

Payments by installment are done periodically and

in equal amounts. This payment scheme is called
annuity.
 Definition of Terms
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Annuity Payment
a sequence of payments made at
interval
equal (fixed) intervals or the time between
periods of time successive payments

Annuities may be classified in different ways as follows

According to payment interval and interest period
03 04
Simple General
Annuity Annuity
an annuity where the payment interval is an annuity where the payment interval is not
the same as the interest period the same as the interest period
 Annuities may be classified in different ways as follows
According to time of payment
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Ordinary Annuity (or Annuity Due
Annuity Immediate) a type of annuity in which the payments
a type of annuity in which the payments are are made at beginning of each payment
made at the end of each payment interval interval

According to duration
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Annuity Contingent
Certain Annuity
an annuity in which payments begin and an annuity in which the payments extend over
end at definite times an indefinite or indeterminate length of time
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Term of an Regular or Periodic
annuity (t) payment (R)
time between the first payment interval and the amount of each payment
last payment interval

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Amount (Future Value) Present Value of an
of an annuity (F) annuity (P)
sum of future values of all the payments to be sum of present value of all the payments to be
made during the entire term of the annuity made during the entire term of an annuity
 Simple Annuity
an annuity where the payment interval is the
same as the interest period
Solving
A. Future value of a Simple Annuity

Example 1. Suppose Mrs. Santos would like

to save ₱3,000 at the end of each month,
for six months, in a fund that gives 6%
compounded monthly. How much is the
amount or future value of her savings after
6 months?
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A. Future value of a Simple Annuity

where:
F = future value R = periodic payment
m = frequency of conversion
i (m) = nominal rate
t = term / time in years
Solution
Given:
R = ₱3,000;
t = 6 months or 1/2 year;
i(m) = 6% or 0.06;
m =12;
Find: F

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Solving
A. Future value of a Simple Annuity

Example 2. In order to save for her high

school graduation, Marie decided to save
₱200 at the end of each month. If the bank
pays 0.25% compounded monthly, how
much will her money be at the end of 6
years?
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Solution
Given:
R = ₱200;
t = 6 years;
i(m) = 0.25% or 0.0025;
m = 12;
Find: F

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Present value of a
Simple Annuity

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Solving
A. Present value of a Simple Annuity

Suppose Mrs. Santos would like to save

₱3,000 at the end of each month, for six
months, in a fund that gives 6%
compounded monthly. How much is the
amount or future value of her savings after
6 months?
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Solving
A. Present value of a Simple Annuity

Mr. Dela Cruz paid ₱200,000 as down

payment for a car. The remaining amount
is to be settled by paying ₱16,200 at the
end of each month for 5 years. If interest is
10.5% compounded monthly, what is the
cash price of his car?
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