LESSON 4.

ANNUITIES
• Annuity –a fixed sum of money paid to someone at regular
intervals, subject to a fixed compound interest rate.
• Simple Annuity – compounding period is equal or the same as
the payment interval.
• General Annuity- compounding period is unequal or not the
same as the payment interval.
• Ordinary Annuity(A)-annuity in which the periodic payment is
made at the end of each payment interval.
• Annuity Due-an annuity in which the periodic payment is
made at the beginning of each payment interval.
Example 1
Determine if the given situations represent simple
annuity or general annuity.

a. Payments are made at the end of each month for a loan

that charges 1.05% interest compounded quarterly.

b. A deposit of 5,500.00 was made at the end of every 3

months to an account that earns 5.6% interest
compounded quarterly.
Example 2:
Determine whether the situation describes an ordinary
annuity or annuity due.

a. Jun’s monthly mortgage payment is 35,148.05 at the end of

each month.

b. The rent for the apartment is 7,000.00 and due at the beginning
of each month.
 SIMPLE ORDINARY ANNUITY

FUTURE VALUE OF SIMPLE ORDINARY ANNUITY PRESENT VALUE OF SIMPLE ORDINARY ANNUITY
(SA-OA-FV) (SA-OA-PV)
 SIMPLE ANNUITY DUE
FUTURE VALUE OF SIMPLE ANNUITY DUE PRESENT VALUE OF SIMPLE ANNUITY DUE
(SA-AD-FV) (SA-AD-PV)
PRESENT VALUE OF GENERAL ORDINARY FUTURE VALUE OF GENERAL ORDINARY ANNUITY
ANNUITY (GA-OA-PV) (GA-OA-FV)
 PRESENT VALUE OF GENERAL ANNUITY DUE FUTURE VALUE OF GENERAL ANNUITY DUE
(GA-AD-PV) (GA-AD-FV)

P= regular
Where
payment/principal
i= r/m
n= mt
b=p/c
An amount of ₱15,000 is deposited at the end of each quarter to a savings
account that earns 7% interest, compounded quarterly. What is the future
value of the savings account after 5 years?

An investment guarantees an investor to receive ₱12,000 monthly for 4 years,

to be received at the end of each month. How much should be invested today
to receive the stream of payment if the investment earns 11.5% interest
compounded monthly?

Determine the future value and present value of an annuity with ₱25,000
payable at the beginning of each semiannual if the interest is 10% compounded
semiannually for 54 months.
Von has a ₱150,000 loan that charges 7.25% interest compounded monthly.
How much is his monthly installment payment if he pays every beginning of the
month for 3.5 years?

What is the future amount of an investment with a payable of ₱8,500 at the end
of each month and earns 12% interest compounded quarterly for 6 years and 3
months?

If you pay 50.00 at the end of each month for 40 years on account that pays
interest at 10% compounded monthly, how much money do you have after 40
years?
Alex and Tony are twins. After graduation and being finally able to get a good job, they plan
for retirement as follows.
Starting at age 24, Alex deposits 10,000.00 at the end of each year for 36 years.
Starting at age 42, Tony deposits 20,000.00 at the end of each year for 18 years.
Who will have the greater amount at retirement if both annuities earn 12% per year
compounded annually?

Stuart Daniels deposited $3,000 at the end of each year for 8 years in his savings account. If
his bank paid 5% interest compounded annually, find the future value of Stuart’s account.

Emy wants to save P100,000.00 for her first year of college. She deposits P3,500.00 at the
beggining of each month in an account that earns 4% per year compounded semi-annually.
Will Emy have enough money saved at the end of 2 years?
Aaron’s mother saved 5,000.00 at the end of every 6 months in an education
plan that earns 6% per year compounded semi-annually. What is the amount at
the end of 18 years?

Suppose Mr. and Mrs. Mariano deposited 20,000.00 at the beginning of each
year for 5 years in an investment that earns 10% per year compounded
annually, what is the amount or future value of the annuity?

Romano’s parents saved for his college education by investing 12,000.00 at the
beginning of each year in an education plan that earns 6% per year
compounded annually. What is the total amount of investment at the end of 16
years?
Hope borrows money for the renovation of her house and repays by making
yearly payments of 50,000.00 at the beginning of each year for a period of 10
years at an interest rate of 8% compounded annually. How much did Hope
borrow?

Find the present value of an ordinary annuity of P2,000.00 payable annually for
9 years if the money is worth 5% compounded quarterly.

The latest cell phone sells for P5,000.00 down payment and P900.00 every end
of each quarter for 3 years at the rate of 8% compounded semi-annually. Find
the cash equivalent of the cell phone.
P25,000.00 will be invested in an account at the end of each year at 4%
compounded semi-annually. Find the size of the fund at the beginning of the
16th year.

Find the present value of an annuity due of P10,000.00 payable quarterly for 10
years if money is worth 6% compounded semi-annually.

Mr. Samson bought a brand new car for P500,000.00 down payment and
P20,000.00 every first day of each month for 3 years. If payments are based on
8% compounded semi-annually, what is the total cash price of the car?
Example 3:
If you pay 50.00 at the end of each month for 40 years on
account that pays interest at 10% compounded monthly, how much
money do you have after 40 years?

Example 4:
Alex and Tony are twins. After graduation and being finally able
to get a good job, they plan for retirement as follows.
• Starting at age 24, Alex deposits 10,000.00 at the end of each year
for 36 years.
• Starting at age 42, Tony deposits 20,000.00 at the end of each year
for 18 years.
Who will have the greater amount at retirement if both annuities earn
12% per year compounded annually?
Ex. 5
Stuart Daniels deposited $3,000 at the end of each year
for 8 years in his savings account. If his bank paid 5% interest
compounded annually, find the future value of Stuart’s account.
Example 6:
Aaron’s mother saved 5,000.00 at the end of every 6 months
in an education plan that earns 6% per year compounded semi-
annually. What is the amount at the end of 18 years?

Example 7:
Example 9:
Suppose Mr. and Mrs. Mariano deposited 20,000.00
at the beginning of each year for 5 years in an investment
that earns 10% per year compounded annually, what is
the amount or future value of the annuity?

Example 10:
Romano’s parents saved for his college education by
investing 12,000.00 at the beginning of each year in an
education plan that earns 6% per year compounded
annually. What is the total amount of investment at the
end of 16 years?
Example 11:
Hope borrows money for the renovation of her house
and repays by making yearly payments of 50,000.00 at
the beginning of each year for a period of 10 years at an
interest rate of 8% compounded annually. How much did
Hope borrow?
Examples:

1. Find the present value of an ordinary annuity of

P2,000.00 payable annually for 9 years if the money is
worth 5% compounded quarterly.

2. The latest cell phone sells for P5,000.00 down

payment and P900.00 every end of each quarter for 3
years at the rate of 8% compounded semi-annually.
Find the cash equivalent of the cell phone.
3. P25,000.00 will be invested in an account at the
end of each year at 4% compounded semi-
annually. Find the size of the fund at the beginning
of the 16th year.

4. Find the present value of an annuity due of

P10,000.00 payable quarterly for 10 years if
money is worth 6% compounded semi-annually.
5. Mr. Samson bought a brand new car for P500,000.00
down payment and P20,000.00 every first day of each
month for 3 years. If payments are based on 8%
compounded semi-annually, what is the total cash price
of the car?

6. Emy wants to save P100,000.00 for her first year of

college. She deposits P3,500.00 at the beggining of each
month in an account that earns 4% per year compounded
semi-annually. Will Emy have enough money saved at the
end of 2 years?