Deferred Annuity

Learning Outcome(s):
At the end of the lesson, the learner is
able to calculate the present value and
period of deferral of a deferred annuity
 Lesson Outline:

1. Deferred Annuity
2. Present Value of a Deferred
Annuity
3. Period of Deferral of a Deferred
Annuity
 Definition of Terms

Deferred Annuity – an annuity

that does not begin until a given
time interval has passed
 Definition of Terms

Period of Deferral – time between the purchase

of an annuity and the start of the payments for
the deffered annuity.

Example: Annual payments of P2,500 for 24

years that will start 12 years from now.
 CASH FLOW

Period of Deferral
6 periods or 6 months
4 periods or 4 years
7 periods or 7 quarters
9 periods or 9 semi-annual intervals
2 periods or 2-year intervals
 Present Value of
Deferred Annuity
FORMULA:

𝑟
𝑗=
𝑚
n
𝑘=𝑚 𝑡
 EXAMPLE 1:

On his 40th birthday, Mr. Ramos decided to

buy a pension plan for himself. This plan will
allow him to claim P10,000 quarterly for 5 years
starting 3 months after his 60th birthday. What
one-time payment should he make on his 40 th

birthday to pay off this pension plan, if the

interest rate is 8% compounded quarterly?
 Solution:

On his 40th birthday, Mr. Ramos decided to buy a

pension plan for himself. This plan will allow him to claim
P10,000 quarterly for 5 years starting 3 months after his
60th birthday. What one-time payment should he make on
his 40 birthday to pay off this pension plan, if the interest
th

rate is 8% compounded quarterly?

4
Given: R = 10,000 m=4 t=5 𝑖 = 0.08
Find: P
 Solution:
On his 40th birthday, Mr. Ramos decided to buy a pension plan for himself. This plan
will allow him to claim P10,000 quarterly for 5 years starting 3 months after his 60th
birthday. What one-time payment should he make on his 40th birthday to pay off this
pension plan, if the interest rate is 8% compounded quarterly?
4
Given: R = 10,000 m=4 t=5 𝑖 = 0.08
Find: P
k = mt = (4 )(20) = 80
Number of artificial payments/period of deferral:
Number of actual payments: n = mt = (4)(5) = 20
 Solution:

Number of artificial payments/period of deferral:

k = mt = (4 )(20) = 80
Number of actual payments: n = mt = (4)(5) = 20
SOLUTION:

Therefore, the present value

of these monthly pensions is
P33,538.38.
 EXAMPLE 2:

A credit card company offers a deferred

payment option for the purchase of any
appliance. Rose plans to buy a smart television
set with monthly payments of P4,000 for 2 years.
The payments will start at the end of 3 months.
How much is the cash price of the TV set if the
interest rate is 10% compounded monthly?
 Solution:

A credit card company offers a deferred payment option

for the purchase of any appliance. Rose plans to buy a smart
television set with monthly payments of P4,000 for 2 years.
The payments will start at the end of 3 months. How much
is the cash price of the TV set if the interest rate is 10%
compounded monthly?
%
 Solution:
A credit card company offers a deferred payment option for the purchase of any
appliance. Rose plans to buy a smart television set with monthly payments of P4,000 for 2
years. The payments will start at the end of 3 months. How much is the cash price of the
TV set if the interest rate is 10% compounded monthly?

Number of artificial payments: k = 2

Number of actual payments: n = mt = (12)(2) = 24
 Solution:

Number of artificial payments: k = 2

Number of actual payments: n = mt = (12)(2) = 24
SOLUTION:

Therefore, the present value

of these monthly pensions is
P85,260.53.
 SEATWORK:

1. Melwin availed of a loan from a bank that

gave him an option to pay P20,000
monthly for 2 years. The first payment is
due after 4 months. How much is the
present value of the loan if the interest
rate is 10% converted monthly?
 SEATWORK:

2. Mr. Quijano decided to sell their farm and to

deposit the fund in a bank. After computing
the interest, they learned that they may
withdraw P480,000 yearly for 8 years starting
at the end of 6 years when it is time for him
to retire. How much is the fund deposited if
the interest rate is 5% converted annually?
ANSWER NO 1.
ANSWER NO 2.