A.

Find the amount of each simple ordinary annuity

1. P 2,000.00 deposited every year for 5 years and 9% per year compounded annually.
Answer:
P = P 2,000.00
i = 0.09
n=5
(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃
𝑖
(1 + 0.09)5 − 1
𝐹𝑉 = 𝑃 2,000
0.09
𝐹𝑉 = 𝑃 2,000(5.98471061)
𝐹𝑉 = 𝑃 11,969.42122
𝑭𝑽 = 𝑷 𝟏𝟏, 𝟗𝟔𝟗. 𝟒𝟐
2. P 3,500.00 deposited every 6 months for 10 years at 8% per year compounded semi-
annually.
Answer:
P = P 3, 500.00
i = 0.08
n =10×2= 20

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃
𝑖
(1 + 0.08)20 − 1
𝐹𝑉 = 𝑃 3,500
0.08
𝐹𝑉 = 𝑃 3,500(45.7619643)
𝐹𝑉 = 𝑃 160,166.875
𝑭𝑽 = 𝑷 𝟏𝟔𝟎, 𝟏𝟔𝟔. 𝟖𝟖
3. P 10,000.00 deposited every quarter for 12 years at 6 % per year compounded quarterly

Answer
P = P 10,000.00

0.06
i= = 0.015
4

n =12×4= 48

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃
𝑖
(1 + 0.015)48 − 1
𝐹𝑉 = 𝑃 10,000
0.015

𝐹𝑉 = 𝑃 10,000(69.56521929)

𝐹𝑉 = 𝑃 695,652.1929

𝑭𝑽 = 𝑷 𝟔𝟗𝟓, 𝟔𝟓𝟐. 𝟏𝟗

4. P 200.00 deposited every month for 10 years at 10% per year compounded monthly.

Answer:

P = P 200.00

0.10
i = 12 = 0.008333333333

n = 10×12=120

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃
𝑖
(1 + 0.008333333333)120 − 1
𝐹𝑉 = 𝑃 200
0.008333333333

𝐹𝑉 = 𝑃 200(204.8449789)

𝑭𝑽 = 𝑷 𝟒𝟎, 𝟗𝟔𝟖. 𝟗𝟗𝟓𝟕𝟖

5. P 5,000.00 deposited every, month for 4 years at 4% per year compounded monthly.

Answer:
P =P 5,000.00

0.04
i = 12 = 0.003333333333

n =4×12=48

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃
𝑖
(1 + 0.003333333333)48 − 1
𝐹𝑉 = 𝑃 5,000
0.003333333333

𝐹𝑉 = 𝑃 5,000(51.95960099)

𝐹𝑉 = 𝑃 259,798.005

𝑭𝑽 = 𝑷𝟐𝟓𝟗, 𝟕𝟗𝟖. 𝟎𝟏

B. Answer each

1. Cecil is saving for her dream cellphone. She deposits P 2,000.00 at the end of each month
into an account that earns 5% per year compounded monthly.

1
a.) Find the amount in the account after 1 2 years.

Answer:

P = P 2,000.00

0.05
i= = 0.004166666667
12

1
n = 1 2 × 12 = 18

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃
𝑖
(1 + 0.004166666667)18 − 1
𝐹𝑉 = 𝑃 2,000
0.004166666667
 𝐹𝑉 = 𝑃 2,000(18.65189063)

𝐹𝑉 = 𝑃 37, 303.78125

𝑭𝑽 = 𝑷 𝟑𝟕, 𝟑𝟎𝟑. 𝟕𝟖

b.) What is the effect on the amount of the account when the

- deposit is doubled (P 4,000)?

Answer:

P = P 4,000

0.05
i= = 0.004166666667
12

1
n = 1 2 = 18

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃
𝑖
(1 + 0.004166666667)18 − 1
𝐹𝑉 = 𝑃 4,000
0.004166666667

𝐹𝑉 = 𝑃 4,000(18.65189064)

𝐹𝑉 = 𝑃 74,607.56256

𝑭𝑽 = 𝑷 𝟕𝟒, 𝟔𝟎𝟕. 𝟓𝟔

- interest rate is doubled (10%)

Answer:

P = P 2,000

0.10
i= = 0.008333333333
12
 1
n = 1 2 × 12 = 18

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃
𝑖
(1 + 0.008333333333)18 − 1
𝐹𝑉 = 𝑃 2,000
0.008333333333

𝐹𝑉 = 𝑃 2,000(19.33347958)

𝐹𝑉 = 𝑃 38,666.95915

𝑭𝑽 = 𝑷 𝟑𝟖, 𝟔𝟔𝟔. 𝟗𝟔

- time period is doubled (3 years)?

Which change in (b) produced the greatest amount?

Answer:

P = P 2,000

0.05
i= = 0.004166666667
12

n = 3 × 12 = 36

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃
𝑖
(1 + 0.00416666667)36 − 1
𝐹𝑉 = 𝑃 2,000
0.004166666667

𝐹𝑉 = 𝑃 2,000(38.7533552)

𝐹𝑉 = 𝑃 77,506.67104

𝑭𝑽 = 𝑷 𝟕𝟕, 𝟓𝟎𝟔. 𝟔𝟕
 • The time period is doubled produced the greatest amount

2. Consider the following annuities:

Annuity 1 Annuity 2
Monthly investment start: P 2,000.00 now P 4,000 10 years from now
Time period: 20 years 10 years
Annual Interest rate: 7% 7%
Compounding Period: Monthly Monthly

a.) Find the total deposit and the amount of each annuity.

Answer:

Annuity 1.

P = P 2,000.00

0.07
i= = 0.005833333333
12

n = 20 × 12 = 240

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃
𝑖
(1 + 0.005833333333)240 − 1
𝐹𝑉 = 𝑃 2,000
0.005833333333

𝐹𝑉 = 𝑃 2,000(520.9266598)

𝑭𝑽 = 𝑷 𝟏, 𝟎𝟒𝟏, 𝟖𝟓𝟑. 𝟑𝟐

Annuity 2.

P= P 4,000.00

0.07
i= = 0.005833333333
12

n = 10 × 12 = 120
 (1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃
𝑖
(1 + 0.005833333333)120 − 1
𝐹𝑉 = 𝑃 4,000
0.005833333333

𝐹𝑉 = 𝑃 4,000(0.005833333333)

𝐹𝑉 = 𝑃 692,339.2297

𝑭𝑽 = 𝑷 𝟔𝟗𝟐, 𝟑𝟑𝟗. 𝟐𝟑

b.) Why are the amount not the same even if the total deposits are the same

Answer:

Because the time period in annuity 1 is greater than annuity 2 and monthly investment in
annuity 2 is greater than annuity 1.

3. Consider the following annuities:

Annuity 1
Monthly deposit: P 1,000.00
Time period: 5 years
Annual Interest rate: 8%
Compounding period: Monthly
Annuity 2
Quarterly deposit: P 3,000.00
Time period: 5 years
Annual Interest rate: 8%
Compounding Period: Quarterly

a.) Find the total deposit and the amount of each annuity

Answers:

Annuity 1

P= P 1,000.00

0.08
i= = 0.006666666667
12

n = 5 × 12 = 60
 (1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃
𝑖
(1 = 0.006666666667)60 − 1
𝐹𝑉 = 𝑃 1,000
0.006666666667

𝐹𝑉 = 𝑃 1,000(73.47685625)

𝐹𝑉 = 𝑃 73,476.85625

𝑭𝑽 = 𝑷 𝟕𝟑, 𝟒𝟕𝟔. 𝟖𝟔

Annuity 2

P= P 3,000.00

0.08
i= = 0.02
4

n = 4 × 12 = 20

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃
𝑖
(1 + 0.02)20 − 1
𝐹𝑉 = 𝑃 3,000
0.02

𝐹𝑉 = 𝑃 3,000(24.2973698)

𝐹𝑉 = 𝑃 72,892.1094

𝐹𝑉 = 𝑃72,892.11

b.) why are the amounts not the same even if the total deposits are the same?

Because the compounding period in annuity 1 is different in annuity 2 and the monthly
deposit in annuity 2 is greater than annuity 1.

4. Adora is preparing for an income fund for her retirement. She wants to receive P 15,000
monthly for the next 25 years starting 1 month from now. The income fund pays 10.5% per
year compounded monthly. How much must Adora deposit now to pay for the annuity?

Answer:
P = P 15,000.00

0.105
i= = 0.00875
12

n = 25 × 12 = 300

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃
𝑖
(1 + 0.00875)300 − 1
𝐹𝑉 = 𝑃 15,000
0.00875

𝐹𝑉 = 𝑃 15,000(1445.468853)

𝑭𝑽 = 𝑷 𝟐𝟏, 𝟔𝟖𝟐, 𝟎𝟑𝟐. 𝟖

• P 21,682,032.8 Adora must deposit now to pay the annuity.

5. As a reward, Teddy receives this offer where he has to choose from one of these payment
plans.

a.) A single cash payment of P 320,000.00 to be received immediately, or

Answer:

b.) monthly reward payment of P 4,800.00 for 10 years

Answer:

P = P 4,800.00
 0.06
i= = 0.005
12

n = 10 × 12 = 120

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃
𝑖
( 1 + 0.005)120 − 1
𝐹𝑉 = 𝑃 4,800
0.005

𝐹𝑉 = 𝑃 4,800(163.8793468)

𝐹𝑉 = 𝑃 786,620.8647

𝑭𝑽 = 𝑷 𝟕𝟖𝟔, 𝟔𝟐𝟎. 𝟖𝟔

If the money can be invested at 6% per year compounded monthly, which offer would you
think Teddy should accept?

Practice and Application

I. solve each of the following

1. Find the present value PV or the amount of the annuity

Payment Payment Interval Term Interest rate Find

a. P 5,000.00 3 months 5 years 5% , k = 12 FV
b. P 1,500.00 6 months 3 years 7% , k = 2 FV
c. P 2,000.00 1 year 10 years 6% , k = 4 PV
d. P 10,000.00 1 month 2 years 10% , k = 4 PV
e. P 12,000.00 2 years 15 years 12% , k = 2 PV

Answers:

a.)
P = P 5,000.00

0.05
i= 12

n = 12 × 5 = 60

3
b = 60

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃 [ ]
(1 + 𝑖)𝑏 − 1

0.05
(1 + 12 )60 − 1
𝐹𝑉 = 𝑃 5,000 [ ]
0.05 3
(1 + 12 )60 − 1

𝐹𝑉 = 𝑃 5,000(1362.811605)

𝐹𝑉 = 𝑃 6,814,058.027

𝑭𝑽 = 𝑷 𝟔, 𝟖𝟏𝟒, 𝟎𝟓𝟖. 𝟎𝟑

b.)

P = P 1,500

0.08
i= 2

n=3×2=6

1
b=6

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃 [ ]
(1 + 𝑖)𝑏 − 1

0.08
(1 + 2 )6 − 1
𝐹𝑉 = 𝑃 1,500 [ ]
0.08 1
(1 + 2 )6 − 1

𝐹𝑉 = 𝑃 1,500(40.45609198)
 𝐹𝑉 = 𝑃 60,684.13797

𝑭𝑽 = 𝑷 𝟔𝟎, 𝟔𝟖𝟒. 𝟏𝟒

c.)

P = P 2,000

0.06
i= 4

n = 10 × 4 = 40

1
b = 10

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃 [ ]
(1 + 𝑖)𝑏 − 1

0.06
(1 + 4 )40 − 1
𝐹𝑉 = 𝑃 2,000 [ 1 ]
0.06 10
(1 + ) −1
4

𝐹𝑉 = 𝑃 2,000(546.3320233)

𝐹𝑉 = 𝑃 1,092,664.047

𝑭𝑽 = 𝑷 𝟏, 𝟎𝟗𝟐, 𝟔𝟔𝟒. 𝟎𝟓

d.)

P = P 10,000

0.10
i= 4

n = 2× 4 = 8

1
b = 24
 (1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃 [ ]
(1 + 𝑖)𝑏 − 1

0.10
(1 + 4 )8 − 1
𝐹𝑉 = 𝑃 10,000 [ 1 ]
0.10 24
(1 + 4 ) − 1

𝐹𝑉 = 𝑃 10,000(212.1676479)

𝐹𝑉 = 𝑃 2,121,676.479

𝑭𝑽 = 𝑷 𝟐, 𝟏𝟐𝟏, 𝟔𝟕𝟔. 𝟒𝟖

e.)

P = P 12,000

0.12
i= 2

n = 15× 2 = 30

2
b = 15

(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝑃 [ ]
(1 + 𝑖)𝑏 − 1

0.12
(1 + 2 )30 − 1
𝐹𝑉 = 𝑃 12,000 [ ]
0.12 2
(1 + 2 )15 − 1

𝐹𝑉 = 𝑃 12,000(608.183075)

𝑭𝑽 = 𝑷 𝟕, 𝟐𝟗𝟖, 𝟏𝟗𝟔