1

ANNUITY
Annuity is a series of equal payment, R made
at equal interval of time, each payment are
made at the end of the payment periods.


Two type of annuity:
R R R R R R R
0 1 2 3 4 5 6 7
i) Future Value Annuity (S)
ii) Present Value Annuity (A)
2
FUTURE VALUE OF ORDINARY
ANNUITY(S)
Future value annuity is the value of all payments
at the end of the term of the annuity.
Its includes the periodic payments and all the
interest accumulated.


where R = the periodic payment of the annuity
n = the total number of payments (term of annuity)
i = the interest rate per payment
S = amount of annuity
(1 ) 1
n
i
S R
i
( +
=
(

3
EXAMPLE OF FUTURE VALUE ANNUITY (S)

Ahmad saved RM10 every two months at 6% interest compounded
every two month. Find the amount after saving for 2 years 4 months.
RM149.47
6
0.06
1
6
0.06
1
10 S
14
=
(
(
(
(

|
.
|

\
|
+
=
S = Amount after saving for 14 times?
R = RM10
i = 0.06 / 6
n = 6 x 2 years 4 months = 6 x 28/12 = 14
10
10 10 10 10 10 10


0 1 2 3 4 5 6 14
S
4
Q1: Johan intends to invest RM50 every
month for 3 years 5 months at 12%
compounded monthly. Find
a) the future value of the annuity
b) the interest that will be earned
Q2: Jenny intends to invest RM200 every
6 months for 5years 6 months at 8%
compounded semiannually. Find
a) the future value of the annuity
b) the interest that will be earned

5
PRESENT VALUE OF ORDINARY
ANNUITY(S)
Present value is the value at the beginning of the
term of the annuity



where R = the periodic payment of the annuity
n = the total number of payments
i = the interest rate per payment
A = present value of annuity

1 (1 )
n
i
A R
i

(
+
=
(

6
EXAMPLE OF PRESENT VALUE ANNUITY (A)

Ahmad took a loan and pay RM100 every month for seven years at
interest of 5% compounded monthly. How much was the loan.
RM7075.18
12
0.05
12
0.05
1 1
100 A
-84
=
(
(
(
(

|
.
|

\
|
+
=
A = Loan ?
R = RM100
i = 0.05 / 12
n = 7 x 12 = 84
100
100 100 100 100 100 100


0 1 2 3 4 5 6 84
A
7
Q3: John will be given RM50 every month
for 3 years 5 months. Find the present
value of this annuity if money is worth 12%
compounded monthly.
Q4: Mariam wants to provide a
scholarship worth RM3,500 every year for
5 years to the best UITM student. Find the
amount she should deposit now if money
is worth 16% compounded annually.
8
SOLVING FOR R AND n
Q5: If money is worth 6% compounded
monthly, how much should Hassan save
every month to accumulate RM12,000 in 3
years?
Q6: To service a loan of RM20,000 at 12%
compounded monthly, Dorina pays RM400
every month. Find the number of
repayments she has to make to settle the
loan.