ANNUITY

-a sequence of equal
payments made at
equal periods of time
 Types of
Annuity
A) Ordinary
Annuity
- Payments are made at
the END of the time
period
B) Annuity Due
- Annuity in which payments
are made at the BEGINNING
of each time period
Future Value of an
Annuity
 r
nt
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 1    1
  n 
S  R
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S – future value
R – periodic payment
 Exampl
es:
1) Mercy deposited
P1,500 at the end of each
year for the next 6 years
in an account paying 8%
compounded annually.
What is the future value
of the annuity ?
2) Ben is an athlete who
believes that his playing
career will last for 7 years.
To prepare for his future,
he deposits P22,000 at the
end of each year for 7
years in account paying
6% compounded annually.
a) How much will he have
on deposit after 7
years?

b) What is the interest

earned?
3) Find the periodic payment
that will amount to the given
under the given conditions.
S = P10,000 ; interest is
5% compounded annually
; payments are made at
the end of each year for
12 years.
Future Value of an
Annuity Due nt
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 EXAMPLES
1) Find the future value
of an annuity due if
payments of P15,000 are
made at the beginning of
each quarter for 5 years,
in an account paying 6%
compounded quarterly.
 EXAMPLES
2) Find the value of an
investment after 4
years of an annuity
due of P4,000 made
semiannually at 9.5%
3. Carla and Mark Reyes
hold a winning ticket in a
state lottery. This ticket will
bring them payments of
P1350 per month for 10
years. The Reyes plan to
use the money to establish
a fund to provide for their
children’s college account
at the Manila First Savings
and Loan
which earns interest at the
rate of 6% per year
compounded monthly. They
made their decision on
December 31,2013 and
their first payment on
January 1,2014. What is the
value of the account on
Dec. 31 two years later?
* A 45-year-old man puts
P3,200 in a retirement
account at the end of each
quarter until he reaches the
age of 60, then makes no
further deposits. If the
account pays 7% interest
compounded quarterly, how
much will be in the account
when he retires at age 65?
Present Value (P)of an
Annuity
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Find the present value
of the following
1. An ordinary annuity
with regular quarterly
payments worth
P1,000 at 3% annual
interest rate
compounded quarterly
at the end of 4 yrs.
2. An annuity due with
regular monthly
payments worth
P2,500 at 6% annual
interest rate
compounded monthly
at the end of one and
a half year
3. In order to make
equal withdrawals
worth P5,000 at the
end of every month
for the next ten
months, how much
should be deposited
into an account
providing 2.7%
Present Value (P)of an
Annuity Due
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P  R 1  
 n  r 
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1. A certain fund
currently has P100,000
and is invested at 3%
interest compounded
annually. How much
withdrawal can be made
at the beginning of each
year so that the fund
will have zero balance at
the end of 12 years?
1. Find the present value
of the ff
a. an ordinary annuity
with P2,000regular
payment at 3%
compounded annually
for one year
b. An ordinary annuity
with P500 payment at
2% compounded
c. An annuity due with
P1,000 regular
payment at 3%
compounded monthly
for one year
d. An annuity due of
P2,000 regular
payment at 2%
compounded annually
for 3 years
2. You buy a new
computer worth P25,000
today in exchange for
monthly equal payments
for 2 years at 3%
interest compounded
monthly. How much are
your monthly payments?
How much total interest
will you have to pay in 2
3. The Santos family
borrowed P800,000 from a
bank to purchase a house.
They agreed to make a
down payment of D pesos
today and the remaining
balance will be paid by
regular payments of
P20,000 at the end of every
quarter for 6 years. If 4%
interest compounded
quarterly is charged