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Simple Annuities
Presented by:
Ms. Mikee Sim
Definition of Annuity
ANNUITY CONTINGENT
CERTAIN ANNUITY
simply called annuity is a sequence of periodic
is one in which payments payments in which the
begin and end at definite payments extend over an
times. indeterminate length of time.
S (-i) = R [1-(1+i)n]
(1 i ) n 1
S R
i
S (i) = R [(1+i)n-1]
Relationship between A and S
A = S(1+i)-n
S = A(1+i)n
Example 3.1
If the prevailing worth of money is 12% interest compounded
monthly, find the present value and the amount of an annuity
of P2,000 payable monthly for 10 years.
Given: j = 0.12; t = 10; m = 12; R = P2,000; n = 120; i = 0.01
Required: A and S
Solution:
1 (1 0.01) 120 (1 0.01)120 1
A 2000 S 2000
0 .01 0 .01
A = P139,401.04 S = P460,077.38
Self-Check Exercise 3.1
Find the present value and amount of an annuity of
P13,250 payable quarterly for 2 years and 6 months at 11%
compounded quarterly.
A = P114,481.0092 S = P150,159.1339
Self-Check Exercise 3.1
To create a fund for his forthcoming business venture,
Matthew decides to deposit P5,000 at the end of each
month to his bank account. If the bank pays 1%
compounded monthly on his deposits, how much will he
Given: j =the
have at 0.01;
endt =of2;2 m = 12; R = P5,000; n = 24; i = 0.0033
years?
Required: S
Solution:
(1 0.00083333) 24 1
S 5000
0 . 00083333
S = P121,157.0586
Self-Check Exercise 3.1
What is the amount of a 4-year ordinary annuity whose
present value is P100,000 if money is worth 2.75% interest
compounded monthly?
S = A(1+i)n
S = 100,000(1+0.00229166)48
S = P111,613.7596
Cash Value or Cash Price
(1 i ) 1
k
Sk R
i
S = P914,595.56
Example 3.3
At the end of each 6 months for 7 years, ABC Printing will
deposit P50,000 in a depreciation fund to provide for the
replacement of its printing machinery at the end of 7 years.
If the fund accumulates at 8% compounded semi-annually,
Given: R = P50,000;
how much is in it (a)j = 0.08;
just t =the
after 7; last
m = deposit
2; n = 14;
andi =(b)
0.04
just
after the (a)
Required: 5th deposit?
S (b) S5
Solution: (b)
(1 0.04) 5 1
S5 50000
0 . 04
S5 = P270,816.13
Self-Check Exercise 3.3
If Mark deposits P3,000 at the end of every 3 months to a
bank that pays 2.5% compounded quarterly, how much is
credited to his account just after his 20th deposit?
S20 = P63,699.7144
Self-Check Exercise 3.3
In preparation for the college education of her son, Mrs.
Calara will deposit P2,400 at the end of each month for 5
years in a fund earning 4.5% compounded monthly. How
much is in the fund (a) just after the 15th deposit and (b) just
Given: R =last
after the P2,400; j = 0.045; t = 5; m = 12; n = 60; i = 0.00375
deposit?
Required: (a) S15 (b) S
Solution: (a)
(1 0.00375)15 1
S15 2400
0 .00375
S15 = P36,960.5304
Self-Check Exercise 3.3
In preparation for the college education of her son, Mrs.
Calara will deposit P2,400 at the end of each month for 5
years in a fund earning 4.5% compounded monthly. How
much is in the fund (a) just after the 15th deposit and (b) just
Given: R =last
after the P2,400; j = 0.045; t = 5; m = 12; n = 60; i = 0.00375
deposit?
Required: (a) S15 (b) S
Solution: (b)
(1 0.00375) 60 1
S 2400
0. 00375
S = P161,149.3251
Remaining liability just after the kth payment
(RLk)
1 (1 i ) ( n k )
RLk R
i
Remaining liability just before the kth payment
(kRL)
k RL R RLk
Example 3.4
Michael bought a laptop and paid P10,000 as down
payment plus P3,000 at the end of each month for a year. If
money is worth 24% converted monthly, find (a) the cash
price of the laptop,(b) Michaels remaining liability just after
Given:
his 5thDP = P10,000;and
installment R =(c)
P3,000; t = 1; m = liability
his remaining 12; n = 12;
justi before
= 0.02
he pays (a)
Required: hisCP7th installment.
(b) RL5 (c) 7RL
Solution: (a)
CP DP A
1 (1.02) 12
CP 10000 3000
0 . 02
CP P 41,726.02
Example 3.4
Michael bought a laptop and paid P10,000 as down
payment plus P3,000 at the end of each month for a year. If
money is worth 24% converted monthly, find (a) the cash
price of the laptop,(b) Michaels remaining liability just after
Given:
his 5thDP = P10,000;and
installment R =(c)
P3,000; t = 1; m = liability
his remaining 12; n = 12;
justi before
= 0.02
he pays (a)
Required: hisCP7th installment.
(b) RL5 (c) 7RL
Solution: (b)
1 (1.02) (125)
RL5 3000
0.02
RL5 P19,415.97
Example 3.4
Michael bought a laptop and paid P10,000 as down
payment plus P3,000 at the end of each month for a year. If
money is worth 24% converted monthly, find (a) the cash
price of the laptop,(b) Michaels remaining liability just after
Given:
his 5thDP = P10,000;and
installment R =(c)
P3,000; t = 1; m = liability
his remaining 12; n = 12;
justi before
= 0.02
he pays (a)
Required: hisCP7th installment.
(b) RL5 (c) 7RL
Solution: (c)
7 RL R RL 7
1 (1.02) (127 )
7 RL 3000 3000
0.02
7 RL P17,140.38
Self-Check Exercise 3.4
A flat screen TV can be purchased with payments of
P12,500 at the end of each month for 2 years. If money is
worth 18% compounded monthly, find (a) the cash price;
(b) the remaining liability just after the 7th payment; (c) the
remaining liability just before the 17th payment.
1 (1.015) ( 247 )
RL 7 12500
0 . 015
RL 7 P186,345.6163
Self-Check Exercise 3.4
A flat screen TV can be purchased with payments of
P12,500 at the end of each month for 2 years. If money is
worth 18% compounded monthly, find (a) the cash price;
(b) the remaining liability just after the 7th payment; (c) the
Given: DP = 0;
remaining R = P12,500;
liability t = 2;the
just before j = 17
0.18;
th m = 12; n = 24; i = 0.015
payment.
Required: (a) CP (b) RL7 (c) 17RL
Solution: (c)
17 RL R RL17
1 (1.015) ( 2417 )
17 RL 12500 12500
0.015
17 RL P94,977.6745
Self-Check Exercise 3.4
In return for a loan, Mr. Domingo promises to pay P15,000
at the end of each 3 months for two years. If money is
worth 10% converted quarterly, find (a) the principal
borrowed; (b) his remaining liability just before his 3rd
Given: R = P15,000;
payment; t = 2; j = 0.10;
(c) his remaining m = just
liability 4; n after
= 8; i the
= 0.025
5th
payment.
Required: (a) A (b) 3RL (c) RL5
Solution: (a)
1 (1 0.025) 8
A 15000
0.025
A P107,552.0575
Self-Check Exercise 3.4
In return for a loan, Mr. Domingo promises to pay P15,000
at the end of each 3 months for two years. If money is
worth 10% converted quarterly, find (a) the principal
borrowed; (b) his remaining liability just before his 3rd
Given: R = P15,000;
payment; t = 2; j = 0.10;
(c) his remaining m = just
liability 4; n after
= 8; i the
= 0.025
5th
payment.
Required: (a) A (b) 3RL (c) RL5
Solution: (b)
3 RL R RL3
1 (1.025) (83)
3 RL 15000 15000
0 . 025
3 RL P84,687.4274
Self-Check Exercise 3.4
In return for a loan, Mr. Domingo promises to pay P15,000
at the end of each 3 months for two years. If money is
worth 10% converted quarterly, find (a) the principal
borrowed; (b) his remaining liability just before his 3rd
Given: R = P15,000;
payment; t = 2; j = 0.10;
(c) his remaining m = just
liability 4; n after
= 8; i the
= 0.025
5th
payment.
Required: (a) A (b) 3RL (c) RL5
Solution: (c)
1 (1.025) (85)
RL5 15000
0 . 025
RL5 P 42,840.3534
Periodic Payment given the Present Value A
1 (1 i ) n Ai
A R R n
i 1 (1 i )
Periodic Payment given the Amount S
(1 i ) 1
n
Si
S R R
i (1 i ) 1
n
Example 3.6
Mrs. Anonas acquired a loan of P50,000 from a credit union
that charged an interest of 16% compounded quarterly. She
promised to settle her obligation by making quarterly
Given: A = P50,000;
payments j = 0.16;
for 3 years. t = 3;
Find her m = 4; npayment.
quarterly = 12; i = 0.04
Required: R
Solution:
Ai 50000(0.04)
R n
R 12
1 (1 i ) 1 (1.04)
R = P5,327.61
Example 3.7
To create a fund for the purchase of a brand new car,
Frances will make equal monthly deposits to a bank that
pays [4%, m = 12] for 5 years. If she intends to buy a car
that will
Given: S =cost her P700,000,
P700,000; j = 0.04;how
t = much
5; m =should
12; n =she
60;deposit
i = 0.0033
monthly to the bank.
Required: R
Solution:
Si 700000(0.00 3 3 )
R R
(1 i ) 1
n
(1 0.00 3 3 ) 1
60
R = P10,558.23
Self-Check Exercise 3.5
Mrs. Cristina Joaquin borrows P50,000 and agrees to
discharge her liability as to principal and interest by paying
equal sums at the end of each 6 months for 8 years. If
money is worth 6 % compounded semi-annually, how
much is her semi-annual payment?
R = P45,663.2639
Solving for time t given the Present Value A
1 (1 i )
n
A R
i
Ai Ai
log 1 log 1
R R
n t
log(1 i ) m log(1 i )
Solving for time t given the Amount S
(1 i ) 1
n
S R
i
Si Si
log 1 log 1
R R
n t
log(1 i ) m log(1 i )
Example 3.8
Mrs. Gina Joaquin needs a fund of P900,000 to expand
her house. To provide for this, she will place P10,000 at the
end of each month in an investment that pays [16%, m =
12]. (a) When will the fund accumulate to at least
P900,000? (b) How many full investments of P10,000 are
required? (c) How much must be added to the accumulated
investment
Given: on the last
S = P900,000; R month to complete
= P10,000; j = 0.16;the
m P900,000
= 12; i = 0.0133
needed for the expansion of the house? (d) How much
must be added to the last regular deposit of P10,000 to
complete the P900,000 on that date?
Given: S = P900,000; R = P10,000; j = 0.16; m = 12;
i = 0.0133
Required:
(a)n
(b)Number of full investments of P10,000
(c)The amount of money that must be deposited on the last
month to complete the P900,000 needed for the repair of
the house
(d)The amount of money that must be added to the last
regular deposit to complete the P900,000 on that date
Given: S = P900,000; R = P10,000; j = 0.16; m = 12;
i = 0.0133
Solution:
(a)n
0.04
900000
log 1 3
Si 10000
log 1
R
n
log(1 i ) 0.04
log 1
3
n 59.53
Given: S = P900,000; R = P10,000; j = 0.16; m = 12;
i = 0.0133
Solution:
(b) Number of full investments of P10,000
0.04
888508.38 1 x 900000
3
900355.16 x 900000
x 900000 900355.16
x P355.16
Given: S = P900,000; R = P10,000; j = 0.16; m = 12;
i = 0.0133
Solution:
(d) The amount of money that must be added to the last
regular deposit to complete the P900,000 on that date
S59 x 900000
888508.38 x 900000
x 900000 888508.38
x P11491 .62
Solving for Rate j
IfAisgiven,
nR
(n 2 1)i 2 6(n 1)i 12 1 0
A
IfSisgiven,
nR
(n 1)i 6(n 1)i 12 1
2 2
0
S
ai 2 bi c 0
b b 2 4ac
i
2a
j
i
m
Example 3.9
If deposits of P500 made at the end of each month for 4
years accumulate to P25,465.60, find the rate at which
money accumulates monthly.
Given: S = P25,465.60; R = P500; t = 4; m = 12; n = 48
Required: j
Solution:
nR
(n 1)i 6(n 1)i 12 1
2 2
0
S
(48)(500)
(482 1)i 2 6(48 1)i 12 1 0
25465.60
Example 3.9
If deposits of P500 made at the end of each month for 4
years accumulate to P25,465.60, find the rate at which
money accumulates monthly.
Given: S = P25,465.60; R = P500; t = 4; m = 12; n = 48
Required: j
Solution:
2303i 2 282i 0.69 0
(282) (282) 2 4(2303)(0.69)
i
2(2303)
i 0.12
i 0.0025
Example 3.9
If deposits of P500 made at the end of each month for 4
years accumulate to P25,465.60, find the rate at which
money accumulates monthly.
Given: S = P25,465.60; R = P500; t = 4; m = 12; n = 48
Required: j
Solution:
i 0.12 i 0.0025
(1 0.12) 48 1 (1 0.0025) 48 1
S 500 S 500
0.12 0.0025
S P995794.14 S P 25465.60
j (0.0025)(12) 0.03