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Simple Annuities
Presented by:
Ms. Mikee Sim
Present Value of Annuity Due ()
A R R 1 (1 i ) ( n 1)
1 (1 i ) ( n 1)
A R 1
i i
A R i 1 (1 i ) ( n 1)
(1 i ) (1 i ) ( n 1)
A R
i i
A R 1 (1 i ) n
(1 i )
i
1 (1 i ) n
R A
i
A A(1 i )
Example 3.10
Mary Frances agrees to pay P2,000 at the beginning of
every 3 months for 6 years and 6 months for an investment
paying 9% compounded quarterly. Find (a) the equivalent
cash price of the investment, (b) the investors remaining
Given: R =just
liability P2,000;
after jher
= 0.09;
10th tpayment
= 6.5; m =is4;made
n = 26;
andi =(c)
0.0225
her
remaining
Required: (a)liability
just before
(b) RL 10 the 20th payment.
(c) 20RL
Solution: (a)
A(1 i )
A
A 2000 1 (1 . 0225) 26
(1.0225)
0.0225
A P39,942.77
Example 3.10
Mary Frances agrees to pay P2,000 at the beginning of
every 3 months for 6 years and 6 months for an investment
paying 9% compounded quarterly. Find (a) the equivalent
cash price of the investment, (b) the investors remaining
Given: R =just
liability P2,000;
after jher
= 0.09;
10th tpayment
= 6.5; m =is4;made
n = 26;
andi =(c)
0.0225
her
remaining
Required: (a)liability
just before
(b) RL 10 the 20th payment.
(c) 20RL
Solution: (b)
1 (1 i ) ( n k )
RLk R
i
1 (1.0225) ( 2610 )
RL10 2000
0.0225
RL10 P 26,625.26
Example 3.10
Mary Frances agrees to pay P2,000 at the beginning of
every 3 months for 6 years and 6 months for an investment
paying 9% compounded quarterly. Find (a) the equivalent
cash price of the investment, (b) the investors remaining
Given: R =just
liability P2,000;
after jher
= 0.09;
10th tpayment
= 6.5; m =is4;made
n = 26;
andi =(c)
0.0225
her
remaining
Required: (a)liability
just before
(b) RL 10 the 20th payment.
(c) 20RL
Solution: (c)
20 RL R RL 20
1 (1.0225) ( 26 20 )
20 RL 2000 2000
0 . 0225
20 RL P13,108.95
)
Amount of an Annuity Due ( S
S R (1 i ) ( n 1)
1 (1 i ) ( n 1)
1
R S R 1
i i
S R (1 i ) ( n 1)
1 i (1 i ) ( n 1)
(1 i )
R S R
i i
S R (1 i ) n
1
(1 i )
i
S S (1 i )
Relationship between and
S
A S(1 i ) n
S A
(1 i ) n
Example 3.11
Find the amount of an annuity due of P15,500 payable at
the beginning of every 6 months for 7 years, if money is
worth 11% compounded semi-annually.
S 15500 (1 . 055)14
1
(1.055)
0.055
S P331,834.28
Example 3.12
For 5 years, P100,000 will be deposited in a fund at the
beginning of every 6 months. If money is worth 10.5%
compounded semi-annually, how much is in the fund (a) at
the end of 4 years just after the last deposit is made, (b)
Given:
at theRend
= P100,000; j = 0.105;
of 5 years? t = 5;
(c) What ismthe
= 2; n = 10;value
present i = 0.0525
of the
fund? (a) S10
Required: (b) S (c)
Solution: (a)
(1 i ) k 1
Sk R
i
(1.0525)10 1
S10 100000
0 . 0525
S10 P1,272,563.84
Example 3.12
For 5 years, P100,000 will be deposited in a fund at the
beginning of every 6 months. If money is worth 10.5%
compounded semi-annually, how much is in the fund (a) at
the end of 4 years just after the last deposit is made, (b)
Given:
at theRend
= P100,000; j = 0.105;
of 5 years? t = 5;
(c) What ismthe
= 2; n = 10;value
present i = 0.0525
of the
fund? (a) S10
Required: (b) S (c)
Solution: (b)
S S (1 i )
S 100000 (1 . 0525)10
1
(1.0525)
0.0525
S P1,339,373.44
Example 3.12
For 5 years, P100,000 will be deposited in a fund at the
beginning of every 6 months. If money is worth 10.5%
compounded semi-annually, how much is in the fund (a) at
the end of 4 years just after the last deposit is made, (b)
Given:
at theRend
= P100,000; j = 0.105;
of 5 years? t = 5;
(c) What ismthe
= 2; n = 10;value
present i = 0.0525
of the
fund? (a) S10
Required: (b) S (c)
Solution: (c)
S(1 i ) n
A
(1339373.44)(1.0525) 10
P802,935.46
Self-Check Exercise 3.7
Find the present value and amount of an annuity of P2,500 payable at
the beginning of each 3 months whose term is 7 years and moneys
worth is at 6.5% interest rate, compounded quarterly.
A 2500 1 (1 . 01625) 28
(1.01625)
0.01625
A P56,789.21
Self-Check Exercise 3.7
Find the present value and amount of an annuity of P2,500
payable at the beginning of each 3 months whose term is 7
years and moneys worth is [ j = 0.065, m = 4 ].
Given: R = P2,500; j = 0.065; t = 7; m = 4; n = 28; i = 0.01625
Required: and S
Solution:
S S (1 i )
S 2500 (1 . 01625 ) 28
1
(1.01625)
0.01625
S P89,182.87
Self-Check Exercise 3.7
Russel owes Cathy a certain amount of money and
promises to settle her obligation by paying P4,500 at the
beginning of each 3 months for 4 years and 6 months with
interest
Given: at 12%
R = P4,500; converted
j = 0.12; t = 4.5; m = 4; quarterly.
n = 18; i = 0.03 Find how much the
loan is.
Required:
Solution:
A(1 i )
1 (1.03) 18
4500 (1.03)
0.03
P 63,747.53
Self-Check Exercise 3.7
Mrs. Coronacion wishes her son Dennis to receive a certain
amount on his 19th birthday. To realize this, Mrs. Coronacion will
invest P2,500 at the beginning of each year after Dennis turns 7.
If money earns interest at 5% compounded annually, how much
Given: R = P2,500;
will Dennis j =the
receive at 0.05;
agetof= 19?
12; m = 1; n = 12; i = 0.05
Required:
S
Solution:
S S (1 i )
S 2500 (1 . 05)12
1
(1.05)
0.05
S P 41,782.46
Self-Check Exercise 3.7
Cely has been depositing P8,000 at the beginning of each
month to a bank that pays 4% compounded monthly. How
much is credited to her account (a) just after her 16 th
deposit
Given: R=is P8,000;
made, (b)
j =at0.04;
the end
m = of
12;2 iyears and 6 months?
= 0.00333333
Required: (a) S16
(b) S
Solution: (a)
(1 0.00333333)16 1
S16 8000
0 . 00333333
S16 P131,250.32
Self-Check Exercise 3.7
Cely has been depositing P8,000 at the beginning of each
month to a bank that pays 4% compounded monthly. How
much is credited to her account (a) just after her 16 th
deposit
Given: R=is P8,000;
made, (b)
j =at0.04;
the end
m = of
12;2 iyears and 6 months?
= 0.00333333
Required: (a) S16
(b) S
Solution: (b)
S 8000 (1 0 . 00333333) 30
1
(1 0.00333333)
0.00333333
S P 252,809.05
Periodic Payment given the Present Value
A R 1 (1 i ) n
i
(1 i) R n
i [1 (1 i) ](1 i )
Periodic Payment given the Amount
S
(1
n
i ) 1 i
S
S R (1 i ) R
i [(1 i ) 1](1 i )
n
Example 3.13
In order to accumulate P50,000 needed for the purchase of
a new sala set, Mrs. Garcia will deposit equal sums of
money at the beginning of each month for 2 years. If
money is worth 12% compounded monthly, how much
should S
Given: = P50,000;
she j = 0.12; t = 2; m = 12; n = 24; i = 0.01
deposit monthly?
Required: R
Solution:
Si
R
[(1 i ) n 1](1 i )
50000(0.01)
R
[(1 0.01) 24 1](1 0.01)
R P1,835.32
Example 3.14
To discharge a debt of P1,200,000 made to a bank for the
purchase of a lot, Mr. Cruz promised to pay equal sums at
the beginning of each 3 months for 8 years. If money is
worth15
Given: % compounded
= P1,200,000; quarterly,
j = 0.155; t = 8; m =find
4; nthe quarterly
= 32; i = 0.03875
payment.
Required: R
Solution:
i
R
[1 (1 i ) n ](1 i )
1200000(0.03875)
R 32
[1 (1 0.03875) ](1 0.03875)
R P 63,609.01
Self-Check Exercise 3.8
Mr. De Jesus borrows P200,000 and agrees to discharge
his liability by making equal payments at the beginning of
each 6 months for 3 years. If money is worth [4.5%, m = 2],
find his semi-annual payment.
R (1 i ) R (1 i )
Si
log 1
Si R (1 i )
n log(1 i ) log 1 n
R(1 i ) log(1 i )
Si
log 1
R (1 i )
t
m log(1 i )
Example 3.15
Suppose payments for an annuity due are made at the beginning of
every 3 months and money is worth 14% compounded quarterly.
(a) How many full payments of P12,500 are needed to discharge a loan
of P60,000? Is the last payment still equal toP12,500? (b) How much
must be= paid
Given: on theRlast
P60,000; period toj =settle
= P12,500; 0.14;the
m obligation completely?
= 4; i = 0.035
Required: (a) n (b) Last payment that is less than the regular payment
Solution: (a) i
A
log 1
R (1 i )
n
log(1 i )
60000(0.035)
log 1
(12500)(1 0.035)
n
log(1 0.035)
n 5.15
Example 3.15
Suppose payments for an annuity due are made at the beginning of
every 3 months and money is worth 14% compounded quarterly.
(a) How many full payments of P12,500 are needed to discharge a loan
of P60,000? Is the last payment still equal toP12,500? (b) How much
must be= paid
Given: on theRlast
P60,000; period toj =settle
= P12,500; 0.14;them obligation
= 4; i = 0.035 completely?
Required: (a) n (b) Last payment that is less than the regular payment
Solution: (b) 1 (1 0.035) 4 5
60000 12500 12500 x(1 0.035)
0.035
60000 12500 45913.49 x(1 0.035) 5
47500 45913.49 x(1 0.035) 5
1,586.51 x(1.035) 5
1,586.51
x
(1.035) 5
x P1,884.28
Example 3.16
To create a fund of P100,000, (a) how many deposits of
P4,800 must be placed at the beginning of each month if
money accumulates at the interest rate 6%, compounded
monthly?
Given: (b) HowR much
= P100,000;
S must
= P4,800; be added
j = 0.06; m = 12;toi =the fund at the
0.005
end of the
Required: (a) nterm to complete
(b) Last deposit thatthe P100,000?
is less than the regular deposit to
complete a fund of P100,000
Solution: (a)
Si 100000(0.005)
log 1 log 1
R (1 i ) 4800(1 0.005)
n
log(1 i ) log(1 0.005)
n 19.77
Example 3.16
To create a fund of P100,000, (a) how many deposits of
P4,800 must be placed at the beginning of each month if
money accumulates at the interest rate 6%, compounded
monthly?
Given: (b) HowR much
= P100,000;
S must
= P4,800; be added
j = 0.06; m = 12;toi =the fund at the
0.005
end of the
Required: (a) nterm to complete
(b) Last deposit thatthe P100,000?
is less than the regular deposit to
complete a fund of P100,000
Solution: (b) (1 0.005)19 1
S19 4800
0.005
S19 P95,422.64
100000 95422.64(1 0.005) x
100000 95899.75 x
x 100000 95899.75
x P 4,100.25
Self-Check Exercise 3.9
If P5,000 is placed in a fund at the beginning of each 3
months and the fund is invested at 5.75% compounded
quarterly, when will the fund contain at least P150,000?