Gen Math Topic 4 - 3

Simple Annuity
Coverage:
• Future Value of a Simple Annuity
• Present Value of a Simple Annuity
• Periodic Payment of a Simple Annuity
Introduction
Introduction
• Annuities are basically loans that are paid back over a set
period of time at a set interest rate with consistent payments
each period.
• A mortgage or car loan are simple examples of an annuity.
• The six potential variables included in an annuity calculation
are the present value, the future value, interest, time
(number of periods), payment amount, and payment growth
(if applicable).
Introduction
DEFINITION OF TERMS
Present Value (PV) – This is the value of the annuity at time 0
(when the annuity is first created)
Future Value (FV) – This is the value of the annuity at time n
(i.e. at the conclusion of the life of the annuity).
1. Payments (A) – Each period will require individual
payments that will be represented by this amount.
Introduction
DEFINITION OF TERMS
4. Number of Payments (n) – The number of payments (A) will
equate to the number of expected periods of payment over the
life of the annuity.
5. Interest (i) – Annuities occur over time, and thus a given rate of
return (interest) is applied to capture the time value of money.
6. Growth (g) – For annuities that have changes in payments,
there is a growth rate applied to these payments over time.
Finding the
Future Value of a Simple Annuity
Simple Annuity
FUTURE VALUE OF A SIMPLE ANNUITY
The future value F of an ordinary annuity is given by
where R is the regular payment;

j is the interest rate per period;
n is the number of payments
Simple Annuity
SAMPLE PROBLEM 1.
Suppose Mrs. Remoto would like to save P3,000 every month
in a fund that gives 9% compounded monthly. How much is
the amount or future value of her savings after 6 months?
Simple Annuity
SAMPLE PROBLEM 2.
In order to save for her high school graduation, Marie decided
to save P200 at the end of each month. If the bank pays
0.250% compounded monthly, how much will her money be at
the end of 6 years?
Finding the
Present Value of a Simple Annuity
Simple Annuity
PRESENT VALUE OF A SIMPLE ANNUITY
The present value of an ordinary annuity is given by
where R is the regular payment;

Simple Annuity
SAMPLE PROBLEM 3.
Suppose Mrs. Remoto would like to know the present value of
her monthly deposit of P3,000 when interest is 9%
compounded monthly. How much is the present value of her
savings at the end of 6 months?
Simple Annuity
CASH PRICE OR CASH VALUE
The cash value or cash price of a purchase is equal to the
down payment (if there is any) plus the present value of the
installment payments.
Simple Annuity
SAMPLE PROBLEM 4.
Mr. Ribaya paid P200,000 as down payment for a car. The
remaining amount is to be settled by paying P16,200 at the
end of each month for 5 years. If interest is 10.5%
compounded monthly, what is the cash price of his car?
Finding the
Periodic Payment of a Simple
Annuity
Simple Annuity
PERIODIC PAYMENT OF A SIMPLE ANNUITY
Periodic payment R can also be solved using the formula for
amount F or present value P of an annuity.
Simple Annuity
PERIODIC PAYMENT OF A SIMPLE ANNUITY
Where R is the regular payment;
P is the present value of an annuity
F is the future value of an annuity
Simple Annuity
SAMPLE PROBLEM 5.
Paolo borrowed P 100 000. He agrees to pay the principal
plus interest by paying an equal amount of money each year
for 3 years. What should be his annual payment if interest is
8% compounded annually?
Application
Simple Annuity
SAMPLE PROBLEM 6.
Aling Paring started to deposit P2,000 quarterly in a fund that
pays 5.5% compounded quarterly. How much will be in the
fund after 6 years?
Simple Annuity
SAMPLE PROBLEM 7.
The buyer of a house and lot pays P200,000 cash and
P10,000 every month for 20 years. If money is 9%
compounded monthly, how much is the cash value of the lot?
Simple Annuity
SAMPLE PROBLEM 8.
Grace borrowed P150,000 payable in 2 years. To repay the
loan, she must pay an amount every month with an interest
rate of 6% compounded monthly. How much should he pay
every month?

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Simple Annuity

where R is the regular payment;

where R is the regular payment;

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