ANNUITIES

Engr. Charity Hope Gayatin

Learning Outcome
Derive and use factors for uniform series - present worth (P/A) and
capital recovery factors (A/P)
Derive and use factors for uniform series compound amount (F/A)
and sinking fund (A/F)

Annuities
ANNUITY are series of equal payments occurring at equal periods of
time
ORDINARY ANNUITY are series of equal payments made at the end of
each period
DEFERRED ANNUITY are series of equal payments where the first
payment is made several periods after the beginning of the annuity
PERPETUITY are series of equal payments in which the payments
continue indefinitely
P=A/i

Uniform Series Present Worth (P/A) and

Capital Recovery Factor (A/P)
The Uniform Series Present Worth Factor (P/A) is used to calculate the
equivalent P value in year 0 for a uniform end-of-period series of A
values beginning at the end period 1 and extending for n periods.
The Capital Recovery Factor (A/P) is used to calculate the equivalent
uniform annual worth A over n years for a given P in year 0, when the
interest rate is i.

Uniform Series Present Worth (P/A) and

Capital Recovery Factor (A/P)

Uniform Series Present Worth (P/A) and

Capital Recovery Factor (A/P)

Sinking Fund Factor (A/F) and Uniform Series

Compound Amount Factor (F/A)
The Sinking Fund Factor (A/F) determines the uniform annual series A
that is equivalent to a given future amount F. The uniform series A
begins at the end of year (period) 1 and continues through the year of
the given F. The last A value and F occur at the same time.
The Uniform Series Compound Amount Factor (F/A) is used to yield
the future worth of the uniform series. The future amount F occurs in
the same period as the last A.

Sinking Fund Factor (A/F) and Uniform Series

Compound Amount Factor (F/A)

Sinking Fund Factor (A/F) and Uniform Series

Compound Amount Factor (F/A)

Problem
1.

What are the present worth and the accumulated amount of a 10 year
annuity paying P10000 at the end of each year, with interest at 15%
compounded annually?

2.

On the day his grand son was born, a man deposited to a trust
company a sufficient amount of money so that the boy could receive 5
annual payments of P10000 each for his college tuition fees, starting
with his 18th birthday. Interest at the rate of 12% per annum was to be
paid on all amounts on deposit. There was also a provision that the
grandson could elect to withdraw no annual payments and receive a
single lump amount on his 25th birthday. The grandson chose this
option.
a) How much did the boy receive as single payment?
b) How much did the grandfather deposit?

3.

What amount of money invested today at 15% interest can provide the
following scholarship: P30000 at the end of each year for 6 years,
P40000 for the next 6 years and P50000 thereafter?