Lesson 3

Annuities
LAGUNA SENIOR HIGH SCHOOL
Sta. Cruz, Laguna
What is ANNUITY?
An ANNUITY is a sequence of
equal payments (or deposits)
made at a regular interval of
time.
LAGUNA SENIOR HIGH SCHOOL
Sta. Cruz, Laguna
SIMPLE ANNUITY?
In this type of annuity, the
interest conversion period is
equal or the same as the
payment interval.
LAGUNA SENIOR HIGH SCHOOL
Sta. Cruz, Laguna
LAGUNA SENIOR HIGH SCHOOL
Sta. Cruz, Laguna
Term of an Annuity (t)
The time between the first
payment interval and the last
payment interval.

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Sta. Cruz, Laguna
Regular or Periodic Payment (R)
The amount of each payment.

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Amount (Future Value) of an annuity (F)
The sum of future value of all
the payments to be made during
the entire term of the annuity.

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Sta. Cruz, Laguna
LAGUNA SENIOR HIGH SCHOOL
Sta. Cruz, Laguna
Example:
Suppose Mrs. Manda would like to
deposit Php3,000 every month in a
fund that gives 9% compounded
monthly. How much is the amount of
future value of her savings after 6
months?
LAGUNA SENIOR HIGH SCHOOL
Sta. Cruz, Laguna
 Example:
To start a business, Jake wants to save a
certain amount of money at the end of every
month to put in an account providing 2%
interest compounded monthly. His estimated
start-up capital is Php150,000. If he wants
to start a business in 1.5 years, how much
monthly deposit must he put into the
account?
LAGUNA SENIOR HIGH SCHOOL
Sta. Cruz, Laguna
Future Value vs Principal/Present Value
of an Annuity
FUTURE VALUE of an annuity is the total
accumulation of the payments and interest
earned.
PRESENT VALUE of an annuity is the
principal that must be invested today to
provide the regular payments of an annuity.
LAGUNA SENIOR HIGH SCHOOL
Sta. Cruz, Laguna
 Example:
Rose works very hard because she wants to
have enough money in her retirement
account when she reaches at the age 60.
She wants to withdraw Php36,000.00 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
LAGUNA SENIOR HIGH SCHOOL
for the annuity.
Sta. Cruz, Laguna
LAGUNA SENIOR HIGH SCHOOL
Sta. Cruz, Laguna
 Example:
Rose works very hard because she wants to
have enough money in her retirement
account when she reaches at the age 60.
She wants to withdraw Php36,000.00 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
LAGUNA SENIOR HIGH SCHOOL
for the annuity.
Sta. Cruz, Laguna
GENERAL ANNUITY?
An annuity wherein the interest
conversion period is unequal or
not the same as the payment
interval.
LAGUNA SENIOR HIGH SCHOOL
Sta. Cruz, Laguna
 Example:
1. Monthly installment payment of a car, lot
or house with an interest rate that is
compounded annually.
2. Paying a debt semi-annually when the
interest is compounded monthly.

LAGUNA SENIOR HIGH SCHOOL

Sta. Cruz, Laguna
GENERAL ORDINARY
ANNUITY?
The periodic payment is made at
the end of the payment interval.

LAGUNA SENIOR HIGH SCHOOL

Sta. Cruz, Laguna
LAGUNA SENIOR HIGH SCHOOL
Sta. Cruz, Laguna
Example:
Cris started to deposit Php1,000
monthly in a fund that pays 6%
compounded quarterly. How
much will be in the fund after 15
years?
LAGUNA SENIOR HIGH SCHOOL
Sta. Cruz, Laguna
LAGUNA SENIOR HIGH SCHOOL
Sta. Cruz, Laguna
 Example:
Ken borrowed an amount of money from
Kat. He agrees to pay the principal plus
interest by paying Php38,973.76 each
year for 3 years. How much money did
he borrow if the interest is 8%
compounded quarterly?
LAGUNA SENIOR HIGH SCHOOL
Sta. Cruz, Laguna