Annuities

Cite some examples

where people pay by
installment.
• Insurance Payments
• Major Purchases (appliances,
property)
• Loan Payments
Basic Terminologies

Annuity
- a sequence of payments made at equal
(fixed) intervals or periods of time.
Payment Interval
- the time between successive payments.
Basic Terminologies
Term of an annuity (t)
- time between the first payment interval
and last payment interval
Regular or Periodic Payment (R)
- the amount of each payment
Basic Terminologies
Amount (Future Value) of an annuity (FVA)
- sum of future values of all the payments to be
made during the entire term of annuity.
Present Value of annuity (PVA)
- sum of present values of all the payments to
be made during the entire term of annuity
Future Value of Annuity
FVA = ]
PMT = Regular Payment
I = Interest rate per period
N = Number of payments
 Compute for the future value of annuity

1. PMT = Ρ3 000; I = 8 %; N = 7; Monthly

2. PMT = Ρ50 000; I = 5 %; N = 5; Annually

3. PMT = Ρ15 000; I = 12 %; N = 3; quarterly

4. PMT = Ρ700 000; I = 6 %; N = 8; Semi-

Annually
Example
Suppose Ms. Remoto would like
to save P3 000 at the end of each
month, for six months, in a fund
that gives 9% compounded
monthly. How much is the
amount of future value of her
savings after 6 months?
Example
In order to save for her high
school graduation, Marie decided
to save P200 at the end of each
month. If the bank pays 0.250%
compounded monthly, how much
her money be at the end of 6
years?
Present Value of Annuity
PVA = ]
PMT = Regular Payment
I = Interest rate per period
N = Number of payments
Compute for the present value of annuity

1. PMT = Ρ3 000; I = 8 %; N = 7; Monthly

2. PMT = Ρ50 000; I = 5 %; N = 5; Annually

3. PMT = Ρ15 000; I = 12 %; N = 3; quarterly

4. PMT = Ρ700 000; I = 6 %; N = 8; Semi-

Annually
Example
Suppose Ms. Remoto would like
to know the present value of her
monthly deposit of P3 000 when
interest is 9% compounded
monthly. How much is the
present value of her savings at the
end of 6 months?
Example
Mr. Ribaya paid P200 000 as
down payment for a car. The
remaining amount is to be settled
by paying P16 200 at the end of
each month for 5 years. If interest
is 10.5% compounded monthly,
what is the cash price of the car?
Example
The buyer of a lot pays P50 000
cash and P10 000 every month for
10 years. If money is 8%
compounded monthly, how much
is the cash value of the lot?
Example
A P50 000 loan is payable in 3
years. To repay the loan, the
debtor must pay an amount every
6 months with an interest rate of
6% compounded semi annually.
How much should he pay every 6
months?
Example
An appliance is for sale at either
a)P15 999 cash or in b)on terms,
P1 499 each month for the next 12
months. Money is 9%
compounded monthly. Which is
lower, the cash price or the
present value of instalment terms?
Activity

Answer Exercises A. and B.

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