GROUP 1

Annuity
- a fixed sum of money paid to someone at a
regular intervals, subject to a fixed compound
interest.
Examples of annuity are:
› Deposits to a savings account
› Monthly housing
› Car mortgages payments
› Insurance payments
› Pension or retirement products
› Credit card purchases
› Loans and debts.
Simple Annuity
- interest conversion or compounding period
is equal or the same as the payment
interval.

Example of Simple Annuity:

Installment payment for an appliance at the end of

each month with interest compounded monthly.

Payment interval Compounding period

Definition of Terms
› Term of annuity, t – time between the first payment
interval and last payment interval.
› Regular or Periodic payment, R – the amount of each
payment.
› Amount (Future Value) of an annuity, F – sum of future
values of all the payments to be made during the entire
term of annuity.
› Present value of an annuity, P – sum of present values of
all the payments to be made during the entire term of the
annuity.
 Formula
› Future Value of Present Value of Periodic Payment R
Simple Ordinary Simple Ordinary of an Annuity
Annuity, F Annuity, P

› F= R P=R
R=
i=
where,
› R is the regular payment
› i is the interest rate per period
› n is the number of payments
› r is the nominal rate
› m is the number of conversion periods
› Example 1. Suppose Mrs. Remoto would like to save
P3,000 every month in a fund that gives 9% compounded
monthly. How much is the amount or future value of her
savings after 6 months?
› Given:
› periodic payment R = P3,000
› term t = 6 months
› interest rate per annum i (12) = 0.09
› number of conversions per year m = 12
› interest rate per period j = 0.0075
Find: Future Value

F= R
F= 3000
F = ₱ 18,340.89
› 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 0.250% compounded
monthly, how much will her money be at the end of 6
years?
› Given:
› R = 200
› m = 12
› r(12)
= 0.250% = 0.0025
› i = = 0.0002083
› t = 6 years
› n = tm = (6)(12) = 72 periods
› Find: F

› F= R
› = 200
› F = ₱ 14, 507.02
› Example 3. Rose works very hard because she wants to
have enough money in her retirement account when she
reaches the age 60. She wants to withdraw ₱ 36 000.00
every 3 months for 20 years starting 3 months after she
retires. How much must rose deposit at retirement at 12%
per year compounded quarterly for the annuity?
› Given:
› R = 36000 m=4
› t = 20
› n = 20(4) = 80
› i= =
› r = 0.12
› Find: Present Value

›P = R
› = 36000
› P = ₱ 1,087,227.48
› Example 4. Paolo borrowed ₱100 000. He agrees to pay
the principal plus interest by paying an equal amount of
money each year for 3 years. What should be his annual
payment if interest is 8% compounded annually?
› Given:
› P= 100 000
› t=3
› n = 1(3) = 3
› i=
› Find: Periodic Payment
R=
=
R = ₱38,803.35
› Example 5. Mr. Ribaya would like to save ₱500 000 for his
son’s college education. How much should he deposit in
a savings account every 6 months for 12 years if interest
is 1% compounded semi-annually?
› Given:
› F = 500 000
› t = 12
› n = 24
› i = 0.005
› r = 0.01
› m=2
› Find: R
›R =
›R =
› R = ₱19,660.31