MATHEMATICS

OF INVESTMENT
By: MICHAEL T. LUMAWIG
EXAMPLE
Finding the Amount of DEFERRED ANNUITY
43
QUESTION
: Mae deposited ₱10,000 quarterly for 1 year at 12% compounded quarterly. The
first deposit was made at the end of 6 months. Determine the amount at the end of the
term.
SOLUTION
:
CASH FLOW
DIAGRAM:
Fa =10,000(1 + )3 + 10,000(1 + )2
₱10,000
₱10,000
+ 10,000(1 + )1 + 10,000
₱10,000
₱10,000 Fa = ₱41,836.27

0 1 2 3 4 5 Fa = A
QUARTER
Fa =10000
Fa = ₱41,836.27
EXAMPLE
Finding the Present value of DEFERRED ANNUITY
44
QUESTION
: Mae deposited ₱10,000 quarterly for 1 year at 12% compounded quarterly.
The first deposit was made at the end of 6 months. Determine the present value of
the deferred annuity.
SOLUTION
:
CASH FLOW
DIAGRAM:
Pa =10,000(1 + )-2 + 10,000(1 + )-3

₱10,000 + 10,000(1 + )-4 + 10,000(1 + )-5

₱10,000
₱10,000 Pa = ₱36,088.33
₱10,000

0 1 2 3 4 5 Pa =A (1+i)-m
QUARTER
Pa = 10000 (1+ )-1
Pa = ₱36,088.33