Deferred Annuity

• Deferred annuity is an annuity in which the

first payment interval is not made at the
beginning nor end of the payment interval,
but at a later date.
• Deferral period is the length of time from the
present to the beginning of the first payment
interval.
• Present value is the amount of money to be
invested or to be paid today
 Example:
Mr. Gran wants to purchase a cellular phone. He
decided to pay monthly for 1 year. If he has to
pay P2,500 at the end of the 4th month and the
interest rate is 9% compounded monthly. How
much is the cash value of the cellular phone?
Given: R=P2,500 j=.09 t=1year m=12
i=.09/12=.0075 n=12(1)=12
k =3 (period of deferral)
 1−(1+𝑖) −(𝑘+𝑛) 1−(1+𝑖) −𝑘
• 𝑃 =R −R
𝑖 𝑖
1−(1+.0075) −15
• 𝑃 1 =P2500 =P35,342.49
.0075
1−(1+.0075) −3
• 𝑃2 =P2500 =P7,388.89
.0075
• 𝑃 1 -𝑃2= P35,342.49-P7,388.89=P27,953.60
 example
• A credit card company offers a deferred
payment option for the purchase of any
appliance. Rose plans to buy a smart TV set
with a monthly payments of P4,000 for 2
years. Payments will starts at the end of 3
months. How much is the cash price of the TV
set if interest is 10% compounded monthly?
• R=P4,000 j=10% m=12 t=2years
• ‘n=24 k=2 i=0.10/12=0.0083
 1−(1+𝑖) −(𝑘+𝑛) 1−(1+𝑖) −𝑘
• =R −R
𝑃 𝑖 𝑖

1−(1+.0083) −26
• 𝑃 1 =P4000 =93,197.81
.0083
1−(1+.0083) −2
• 𝑃2 =P4000 =P7,901.49
.0083
• ______________________________
•

P85,296.32
 how to determine period of defferal
1. Monthly payments of P2000 for 3 years that
will start 8 months from now.
period of deferral =7 months/period

2. Annual payments of P2,500 for 24 years that

will start 12 years from now.

period of deferral=11 years/period

3. Quarterly payments of P2000 for 3 years that
will start 1 year from now.
period of deferral = 3 quarters/period

2. Semi annual payments of P2,500 for 24 years

that will start 3 years from now.
period of deferral=5 semi annual/period
 Activity no 9
1. Janus bought house and lot to be
paid P2,500 every three months for 10
years deferred for 18 months. Find the
present value and the period of
deferral if payment money is worth
10% interest compounded quarterly
• 2. Niña availed a cash loan that gave her an
option to pay P10,000 monthly for 1 year. The
first payment is due after 6 months. Find the
present value and the period of deferral if
payment money is worth 12% interest
compounded monthly?