General-Mathematics Simple-Annuity EDITED

ANNUITY
Where do people
pay installments?
• Insurance payments
• major purchases
(e.g., appliances,
property)
• loan payments
• Payments by installment
are done periodically, and
in equal amounts.
• This payment scheme is
called annuity.
Annuity
Definition of
Terms
• Annuity - a sequence
of payments made at
equal (fixed) intervals
or periods of time
•Payment interval
-the time between
successive
payments
Annuities may be
defined:
• According to payment
interval and interest
period
• a. Simple Annuity-
An annuity where
the payment interval
is the same as the
interest period
• b. General Annuity-
An annuity where
the payment interval
is not the same as
the interest period
•According
to time of
Payment
• a. Ordinary Annuity (or
Annuity Immediate) -
A type of annuity in
which the payments are
made at the end of each
payment interval
• b. Annuity Due -
A type of annuity in
which the payments
are made at beginning
of each payment
interval
•According
duration
•Annuity Certain -
An annuity in
which payments
begin and end at
definite times
• b. Contingent Annuity
- An annuity in
which the payments
extend over an
indefinite (or
indeterminate) length
•Term of an annuity
t - time between the
first payment interval
and last payment
interval
•Regular or
Periodic payment,
R - the amount of
each payment
• Amount (Future Value)
of an annuity,
F - sum of future values
of all the payments to be
made during the entire
term of the annuity
• Present value of an
annuity, P
- sum of present values of
all the payments to be
made during the entire
term of the annuity
Example:
Suppose Mrs. Remoto
would like to save
P3,000 at the end of
each month for six
months, in a fund that
gives 9% compounded
monthly. How much is the
amount or future value of
her savings after 6
months?
Try It!
Peter started to deposit
P5,000 quarterly in a fund
that pays 1% compounded
quarterly. How much will be
in the fund after 2 years?
Amount or Future
Value of Ordinary
Annuity ( Annuity
Immediate)
Example:
Suppose Mrs. Remoto
would like to save
P3,000 at the end of
each month for six
months, in a fund that
gives 9% compounded
amount or future value of
her savings after 6
months?
Given:
R= 3,000
j= = = 0.0075
n= mt=(12)(0.5yrs)=6
F=R
= 3,000
= 18,340.89
Exercises:
1. 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?
Marie will be able to save
P14,507.02 for her graduation.
2. Find the amount of
annuity for quarterly
payments of P2,000 for 5
years with interest rate of
8% compounded quarterly
Answer: P 148, 594.74
Present Value of
Ordinary Annuity
( Annuity Immediate)
Suppose Mrs. Tomore would like
to know the present value of her
monthly deposit of P3,000 when
interest is 9% compounded
present value of her savings at
the end of 6 months?
Given:
R= 3,000
j= = 0.0075
n= 6
P=R
= 3,000
= 17, 536.79
Cash Value
or Cash Price
The cash value or cash
price is equal to the down
payment (if there is any)
plus the present value of
the installment payments.
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?
P=R
= 16, 200
= 753, 702.20
Cash Value= Down
Payment + Present Value
= 200, 000 + 753, 702.20

= 953, 702.20
Pair- Share Activity
a. Find the present value of semi-
annual payments of P8,000 for 12
years with interest rate of 12%
compounded semi-annually.
Pair- Share Activity
b. An appliance is for sale at either
(a) P15,999 cash or (b) on terms,
P1,499 each month for the next 12
months. Money is 9% compounded
monthly. Which is lower, the cash
price or the present value of the
installment terms?
Finding Amount
of Regular
Payment
Since
then,
Paolo borrowed P100 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?
Another!
A P50,000 loan is payable in 3 years.
To repay the loan, the debtor must
pay an amount every 6 months with
an interest rate of 6% compounded
semi-annually. How much should he
pay every 6 months?
R = P 9,229.88
Before working alone!
How much should be invested in a
fund each quarter paying 1.1%
compounded quarterly to accumulate
P125,000 in 4 years?
R = P 7 652.62
Seatwork
How much should be invested
in a fund each year paying 2%
compounded annually to
accumulate P100,000 in 5
years?
R = P 19,215.8
Pop Quiz:
• Payment interval • Annuity
• Simple Annuity • Contingent
• Present value of an Annuity
annuity • Amount of an
• Regular or Periodic Annuity
payment • Ordinary Annuity
• Annuity Certain • Term of an
annuity
1. a sequence of
payments made at
equal (fixed) intervals
or periods of time
2. the time
between
successive
payments
3. An annuity
where the
payment interval is
the same as the
interest period
4. A type of annuity
in which the
payments are made
at the end of each
payment interval
5. An annuity in
which payments
begin and end at
definite times
6. An annuity in which
the payments extend
over an indefinite (or
indeterminate) length
of time
7. Sum of future
values of all the
payments to be made
during the entire
term of the annuity
8. Sum of present
values of all the
payments to be made
during the entire term
of the annuity
9. The amount
of each
payment
10. Time between
the first payment
interval and last
payment interval
Answers:
1. Annuity 6. Contingent Annuity
2. Payment interval 7. Amount of an Annuity
3. Simple Annuity 8. Present value of an annuity
4. Ordinary Annuity9. Regular or Periodic payment
5. Annuity Certain 10. Term of an annuity

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ANNUITY

= 200, 000 + 753, 702.20

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