BUSANA1 Chapter 3 (2) : Annuities With Simple Data

Chapter 3:
Annuities with
Simple Data
Presented by:
Ms. Mikee Sim
Definition of Annuity
Annuity is a sequence of periodic

payments made at equal intervals of time
and most of the time in equal amounts.
Payment interval time between two

consecutive payments of annuity; equivalent to 1
period.
Term starts immediately and ends on the last
payment interval.
Periodic Rent or Periodic Payment (R)
size of each payment.
ANNUITY
ANNUITY
CERTAIN
simply called annuity
is one in which payments
begin and end at definite
times.
CONTINGENT
ANNUITY
is a sequence of periodic
payments in which the
payments extend over an
indeterminate length of time.
1.Ordinary Annuity payments are made at the end of each period.

2.Annuity due payments are made at the beginning of each period.
3.Deferred Annuity first payment is made at some later date.
Present Value of Ordinary Annuity (A)

A = R(1+i)-1 + R(1+i)-2 + R(1+i)-3 + + R(1+i)-(n-1) + R(1+i)-n
A(1+i)-1 = R(1+i)-2 +R(1+i)-3 +R(1+i)-4 + +R(1+i)-n +R(1+i)-n-1
A A(1+i)-1 = R(1+i)-1 -R(1+i)-n-1
A[1-(1+i)-1] = R(1+i)-1 [1-(1+i)-n]
1 (1 i ) n
A R
1
(1 i ) 1
1 i
A = R(1+i)-1 [1-(1+i)-n]
[1-(1+i)-1]
1 (1 i ) n
A R
Amount of Ordinary Annuity (S)

S = R + R(1+i) + + R(1+i)n-3 + R(1+i)n-2 + R(1+i)n-1
S(1+i) = R(1+i) + R(1+i)2 + + R(1+i)n-2 +R(1+i)n-1 +R(1+i)n
S S(1+i) = R - R(1+i)n
S[1-(1+i)] = R [1-(1+i)n]
S (-i) = R [1-(1+i)n]
S (i) = R [(1+i)n-1]
S[1-(1+i)] = R [1-(1+i)n]
(1 i ) n 1
S R
Relationship between A and S
A = S(1+i)-n
S = A(1+i)n
Example 3.1
If money is worth [12%, m=12], find the present
value and the amount of an annuity of P2,000
payable
monthly
years.
Given:
j = 0.12;
t = 10;for
m 10
= 12;
R = P2,000; n = 120; i = 0.01
Required: A and S
Solution:
1 (1 0.01) 120
A 2000
0
.
01
A = P139,401.04
(1 0.01)120 1
S 2000
0
.
01
S = P460,077.38
Self-Check Exercise 3.1

Find the present value and amount of an annuity of
P13,250 payable quarterly for 2 years and 6 months at
[11%, m=4].
In order to create a fund for his forthcoming business
venture, Matthew decides to deposit P5,000 at the end of
each month. If the bank pays 4% compounded monthly on
his deposits, how much is in it at the end of 2 years?
Find the amount of a 4-year ordinary annuity whose
present value is P100,000 if money is worth [16%, m=2]?

Find the present value and amount of an annuity of
P13,250 payable quarterly for 2 years and 6
months
at [11%,
m=4].
Given:
j = 0.11;
t = 2.5;
m = 4; R = P13,250; n = 10; i = 0.0275
Required: A and S
Solution:
1 (1 0.0275) 10
A 13250
0
.
0275
A = P114,481.01
(1 0.0275)10 1
S 13250
0
.
0275
S = P150,159.13

In order to create a fund for his forthcoming business
venture, Matthew decides to deposit P5,000 at the end of
each month. If the bank pays 4% compounded monthly on
Given:
j = 0.04;how
t = 2;
m = is
12;
= P5,000;
i = 0.0033
his deposits,
much
in R
it at
the end nof=224;
years?
Required: S
Solution:
(1 0.0033) 24 1
S 5000
0
.
0033
S = P124,714.44

Find the amount of a 4-year ordinary annuity whose
present value is P100,000 if money is worth [16%, m=2]?
Given: j = 0.16; t = 4; m = 2; A = P100,000; n = 8; i = 0.08
Required: S
Solution:
S = A(1+i)n
S = 100,000(1+0.08)8
S = P185,093.02
Cash Value or Cash Price
Cash Price = Down Payment + A

or
CP = DP + A
Example 3.2
The buyer of a car makes a down payment of P225,000
and pays P20,794.52 at the end of each month for 5 years
to discharge all principal and interest costs at the rate 36%
compounded
monthly.j Find
thet equivalent
cash price of the
Given:
DP = P225,000;
= 0.36;
= 5; m = 12;
car.
R = P20,794.52; n = 60; i = 0.03
Required: Cash Price
Solution:
1 (1 0.03) 60
CP 225000 20794.52
0
.
03
CP = P800,500.06

A resort is acquired by Mr. Coronacion by making P5M
down payment and a sequence of P600,000 payments
made at the end of each year for 5 years. If money is worth
18% effective, find the cash price of the resort.
Mr. Enciso paid P500,000 as down payment for a piece of
property in Tagaytay. The remaining liability is to be settled
by paying P50,000 at the end of each month for 3 years. If
money is worth 15% compounded monthly, find the cash
price of the property.

A resort is acquired by Mr. Coronacion by making P5M
down payment and a sequence of P600,000 payments
made at the end of each year for 5 years. If money is worth
18% effective,
find the cash
pricet =
of5;the
Given:
DP = P5,000,000;
j = 0.18;
m resort.
= 1;
R = P600,000; n = 5; i = 0.18
Solution:
1 (1 0.18) 5
CP 5000000 600000
0
.
18
CP = P6,876,302.61

Mr. Enciso paid P500,000 as down payment for a piece of
property in Tagaytay. The remaining liability is to be settled
by paying P50,000 at the end of each month for 3 years. If
money
is =worth
15% compounded
Given:
DP
P500,000;
j = 0.15; t = 3;monthly,
m = 12; find the cash
price of the property.
R = P50,000; n = 36; i = 0.0125
Solution:
1 (1 0.0125) 36
CP 500000 50000
0
.
0125
CP = P1,942,363.37
Amount of an Annuity at Any Time (Sk)
(1 i ) 1
Sk R
k = number of deposits or payments made
Example 3.3
At the end of each 6 months for 7 years Mobius Strip
Corporation will deposit P50,000 in a depreciation fund to
provide for the replacement of its printing machinery at the
end of 7 years. If the fund accumulates at 8% compounded
Given:
R = P50,000;
= 0.08;
mjust
= 2;after
n = 14;
= 0.04
semi-annually,
how jmuch
is tin=it7;(a)
the ilast
deposit and
(b) just(b)
after
Required:
(a) S
S5 the 5th deposit?
Solution: (a)
(1 0.04)14 1
S 50000
0
.
04
S = P914,595.56
Example 3.3
At the end of each 6 months for 7 years Mobius Strip
Corporation will deposit P50,000 in a depreciation fund to
provide for the replacement of its printing machinery at the
end of 7 years. If the fund accumulates at 8% compounded
Given:
R = P50,000;
= 0.08;
mjust
= 2;after
n = 14;
= 0.04
semi-annually,
how jmuch
is tin=it7;(a)
the ilast
deposit and
(b) just(b)
after
Required:
(a) S
S5 the 5th deposit?
Solution: (b)
(1 0.04) 5 1
S5 50000
0
.
04
S = P270,816.13

If Mark deposits P3,000 at the end of each 3 months to a
bank that pays 2.5% compounded quarterly, how much is
credited to his account just after his 20th deposit?
In preparation for the college education of his son, Mr.
Yanga will deposit P2,400 at the end of each month for 5
years in a fund earning 4.5% compounded monthly. How
much is in the fund (a) just after the 15th deposit and (b) just
after the last deposit?

If Mark deposits P3,000 at the end of each 3 months to a
bank that pays 2.5% compounded quarterly, how much is
credited to his account just after his 20th deposit?
Given: R = P3,000; j = 0.025; m = 4; k = 20; i = 0.00625
Required: S20
Solution:
(1 0.00625) 20 1
S 20 3000
0
.
00625
S20 = P63,699.71

Given:
R =last
P2,400;
j = 0.045; t = 5; m = 12; n = 60; i = 0.00375
after the
deposit?
Required: (a) S15
(b) S
Solution: (a)
(1 0.00375)15 1
S15 2400
0
.
00375
S15 = P36,960.53

Given:
R =last
P2,400;
j = 0.045; t = 5; m = 12; n = 60; i = 0.00375
after the
deposit?
Required: (a) S15
(b) S
Solution: (b)
(1 0.00375) 60 1
S 2400
0
.
00375
S = P161,149.33
Remaining liability just after the kth payment

(RLk)
1 (1 i ) ( n k )
RLk R
Remaining liability just before the kth payment

(kRL)
k
RL R RLk
Example 3.4
Michael bought a laptop computer and paid P20,000 as
down payment plus P10,000 at the end of each month for a
year. If money is worth 24% converted monthly, find (a) the
cash value of the computer,(b) Michaels remaining liability
Given:
DP =his
P20,000;
R = P10,000;
t = 1;
= 12; n = 12;
i = 0.02
just after
5th installment
and (c)
hismremaining
liability
Required:
(a) CP
(c) 7RL
just before
he pays(b)
hisRL
7th5 installment.
Solution: (a)
CP DP A
1 (1.02) 12
CP 20000 10000
0
.
02
CP P125,753.41
Example 3.4
Michael bought a lap top computer and paid P20,000 as
Given:
DP =his
P20,000;
R = P10,000;
t = 1;
= 12; n = 12;
i = 0.02
just after
5th installment
and (c)
hismremaining
liability
Required:
(a) CP
(c) 7RL
just before
he pays(b)
hisRL
7th5 installment.
Solution: (b)
1 (1.02) (125)
RL5 10000
0
.
02
RL5 P 64,719.91
Example 3.4
Michael bought a lap top computer and paid P20,000 as
Given:
DP =his
P20,000;
R = P10,000;
t = 1;
= 12; n = 12;
i = 0.02
just after
5th installment
and (c)
hismremaining
liability
Required:
(a) CP
(c) 7RL
just before
he pays(b)
hisRL
7th5 installment.
Solution: (c)
7
RL R RL 7
1 (1.02) (127 )
7 RL 10000 10000
0.02
RL P57,134.60

A flat screen TV can be purchased with payments of
P12,500 at the end of each month for 2 years. If money is
worth 18% compounded monthly, find (a) the cash price;
(b) the remaining liability just after the 7th payment; (c) the
remaining liability just before the 17th payment.
In return for a loan, Mr. Domingo promises to pay P15,000
at the end of each 3 months for two years. If money is
worth 10% converted quarterly, find (a) the principal
borrowed; (b) his remaining liability just before his 3rd
payment; (c) his remaining liability just after the 5th
payment.

th m = 12; n = 24; i = 0.015
Given:
DP = 0;
R = P12,500;
t = 2;the
j = 17
0.18;
remaining
liability
just before
payment.
Required: (a) CP
(b) RL7
(c) 17RL
Solution: (a)
CP DP A
1 (1.015) 24
CP 0 12500
0
.
015
CP P 250,380.07

th m = 12; n = 24; i = 0.015
Given:
DP = 0;
R = P12,500;
t = 2;the
j = 17
0.18;
remaining
liability
just before
payment.
Required: (a) CP
(b) RL7
(c) 17RL
Solution: (b)
1 (1.015) ( 247 )
RL 7 12500
0
.
015
RL 7 P186,345.62

th m = 12; n = 24; i = 0.015
Given:
DP = 0;
R = P12,500;
t = 2;the
j = 17
0.18;
remaining
liability
just before
payment.
Required: (a) CP
(b) RL7
(c) 17RL
Solution: (c)
17
RL R RL17
1 (1.015) ( 2417 )
17 RL 12500 12500
0.015
17
RL P94,977.67

Given:
R = P15,000;
t = 2; j = 0.10;
m = just
4; n after
= 8; i the
= 0.025
payment;
(c) his remaining
liability
5th
Required:
(a) A
(b) 3RL
(c) RL5
payment.
Solution: (a)
1 (1 0.025) 8
A 15000
0.025
A P107,552.06

Given:
R = P15,000;
t = 2; j = 0.10;
m = just
4; n after
= 8; i the
= 0.025
payment;
(c) his remaining
liability
5th
Required:
(a) A
(b) 3RL
(c) RL5
payment.
Solution: (b)
3
RL R RL3
1 (1.025) (83)
3 RL 15000 15000
0
.
025
RL P84,687.43

Given:
R = P15,000;
t = 2; j = 0.10;
m = just
4; n after
= 8; i the
= 0.025
payment;
(c) his remaining
liability
5th
Required:
(a) A
(b) 3RL
(c) RL5
payment.
Solution: (c)
1 (1.025) (85)
RL5 15000
0
.
025
RL5 P 42,840.35
Periodic Payment given the Present Value A
1 (1 i ) n
Ai
A R
R
n
i
1 (1 i )
Periodic Payment given the Amount S
(1 i ) 1
Si
S R
R
n
i
(1 i ) 1
Example 3.6
Mrs. Anonas acquired a loan of P50,000 from a credit union
that charges interest of 16% compounded quarterly. She
promised to settle her obligation by making quarterly
Given:
A = P50,000;
j = 0.16;
t = 3;
m = 4; npayment.
= 12; i = 0.04
payments
for 3 years.
Find her
quarterly
Required: R
Solution:
Ai
50000(0.04)
R
R
n
12
1 (1 i )
1 (1.04)
R = P5,327.61
Example 3.7
In order to create a fund for the purchase of a brand new
car, Frances will make equal monthly deposits to a bank
that pays [4%, m = 12] for 5 years. If she intends to buy a
car that
cost her P700,000,
Given:
S =will
P700,000;
j = 0.04; t =how
5; mmuch
= 12;should
n = 60;she
i = 0.0033
deposit monthly to the bank.
Required: R
Solution:
Si
700000(0.00 3 3 )
R
R
n
60
(1 i ) 1
(1 0.00 3 3 ) 1
R = P10,558.23

A man borrows P50,000 and agrees to discharge his
liability as to principal and interest by paying equal sums at
the end of each 6 months for 8 years. If money is worth 6
% compounded semi-annually, find his semi-annual
payment.
At the end of each year for 10 years, a corporation will
deposit equal sums in a depreciation fund to provide for the
replacement of machinery worth P500,000. If the fund
accumulates at 8% effective, how much deposit must be
made?

A man borrows P50,000 and agrees to discharge his
liability as to principal and interest by paying equal sums at
% compounded
semi-annually,
Given:
A = P50,000;
j = 0.065; t =find
8; mhis
= semi-annual
2; n = 16; i = 0.0325
payment.
Required: R
Solution:
Ai
50000(0.0325)
R
R
n
16
1 (1 i )
1 (1.0325)
R = P4,057.01

At the end of each year for 10 years, a corporation will
deposit equal sums in a depreciation fund to provide for the
replacement of machinery worth P500,000. If the fund
accumulates
at 8% effective,
much
must
Given:
S = P500,000;
j = 0.08; thow
= 10;
m = deposit
1; n = 10;
i = be
0.08
made?
Required: R
Solution:
Si
500000(0.08)
R
R
n
10
(1 i ) 1
(1 0.08) 1
R = P34,514.74
Solving for time t given the Present Value A
1 (1 i )
A R
Ai
Ai
log 1
log 1
R
R
n
t
log(1 i )
m log(1 i )
n
Solving for time t given the Amount S
(1 i ) 1
S R
Si
Si
log 1
log 1
R
R
n
t
log(1 i )
m log(1 i )
n
Example 3.8
A fund of P900,000 is needed for the expansion of a house.
To provide for this, the owner of the house will place
P10,000 at the end of each month in an investment that
pays [16%, m = 12]. (a) When will the fund accumulate to
at least P900,000? (b) How many full investments of
P10,000 are required? (c) How much must be added to the
accumulated
investment
on the lastj =month
the
Given:
S = P900,000;
R = P10,000;
0.16; to
m complete
= 12; i = 0.0133
P900,000 needed for the expansion of the house? (d) How
much must be added to the last regular deposit of P10,000
to complete the P900,000 on that date?
Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

i = 0.0133
Required:
(a)n
(b)Number of full investments of P10,000
(c)The amount of money that must be deposited on the last
month to complete the P900,000 needed for the repair of
the house
(d)The amount of money that must be added to the last
regular deposit to complete the P900,000 on that date
Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

i = 0.0133
Solution:
(a)n
Si
log 1
R
log(1 i )
n 59.53
0.04
900000
1
10000
log
0.04
log 1
Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

i = 0.0133
Solution:
(b) Number of full investments of P10,000
The integral part of n is 59, thus the number of full payments
is 59.
Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

i = 0.0133
Solution:
(c) The amount of money that must be deposited on the last month to complete
the P900,000 needed for the repair of the house
Let x be the amount needed to complete the P900,000 on the 60 th month.
0.04
S59 1
x 900000
3
59

0.04
1
1
0.04
3
10000
1
x 900000
0.04
Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

i = 0.0133
Solution:
(c) The amount of money that must be deposited on the last month to complete
the P900,000 needed for the repair of the house
Let x be the amount needed to complete the P900,000 on the 60 th month.
0.04
888508.38 1
x 900000
3
900355.16 x 900000
x 900000 900355.16
x P355.16
Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

i = 0.0133
Solution:
(d) The amount of money that must be added to the last
regular deposit to complete the P900,000 on that date
S59 x 900000
888508.38 x 900000
x 900000 888508.38
x P11491 .62
Solving for Rate j

IfAisgiven,
nR
(n 2 1)i 2 6(n 1)i 12 1

0
A
IfSisgiven,
nR
(n 1)i 6(n 1)i 12 1

0
S
ai 2 bi c 0
2
b b 2 4ac
i
2a
j
i
m
Example 3.9
If deposits of P500 made at the end of each month for 4
years accumulate to P25,465.60, find the rate at which
money accumulates monthly.
Given: S = P25,465.60; R = P500; t = 4; m = 12; n = 48
Required: j
Solution:
nR
2
2
(n 1)i 6(n 1)i 12 1
0
S
(48)(500)
(482 1)i 2 6(48 1)i 12 1

0
25465.60
Example 3.9
Given: S = P25,465.60; R = P500; t = 4; m = 12; n = 48
Required: j
Solution:
2303i 2 282i 0.69 0
(282) (282) 2 4(2303)(0.69)
i
2(2303)
i 0.12
i 0.0025
Example 3.9
Given: S = P25,465.60; R = P500; t = 4; m = 12; n = 48
Required: j
Solution:
i 0.0025
i 0.12
(1 0.12) 48 1
S 500
0
.
12
(1 0.0025) 48 1
S 500
0
.
0025
S P995794.14
S P 25465.60
j (0.0025)(12) 0.03
Present Value of Annuity Due ()

( n 1)
( n 1)
(
1
i
)
1
(
1
i
)
A R R
A R 1
i
i
( n 1)
( n 1)
(
1
i
)
(
1
i
)
(
1
i
)
A R
A R
i
i
(
1
i
)
A R
(1 i )
i
1 (1 i ) n
R
A
i
A(1 i )
A
Example 3.10
An investor agrees to pay P2,000 at the beginning of each
3 months for 6 years and 6 months to an investment paying
9% compounded quarterly. Find (a) the equivalent cash
price of the investment, (b) the investors remaining liability
Given:
R = P2,000;
= 0.09; t =and
6.5; (c)
m =his
4; remaining
n = 26; i = 0.0225
just after
the 10thj payment
liability just
Required:
(a) 20
th payment.
(b) RL10
(c) 20RL
before the
Solution: (a)
A(1 i )
A
26
(
1
.
0225
)
A 2000
(1.0225)
0.0225
P39,942.77
A
Example 3.10
Given:
R = P2,000;
= 0.09; t =and
6.5; (c)
m =his
4; remaining
n = 26; i = 0.0225
just after
the 10thj payment
liability just
Required:
(a) 20
th payment.
(b) RL10
(c) 20RL
before the
Solution: (b)
1 (1 i ) ( n k )
RLk R
1 (1.0225) ( 2610 )
RL10 2000
0.0225
RL10 P 26,625.26
Example 3.10
Given:
R = P2,000;
= 0.09; t =and
6.5; (c)
m =his
4; remaining
n = 26; i = 0.0225
just after
the 10thj payment
liability just
Required:
(a) 20
th payment.
(b) RL10
(c) 20RL
before the
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
( n 1)
( n 1)
(
1
i
)
1
(
1
i
)
1
S R
R S R
i
i
( n 1)
( n 1)
(
1
i
)
i
(
1
i
)
(1 i )
S R
R S R
i
i
(
1
i
)
1
S R
(1 i )
i
S S (1 i )
Relationship between and
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 each 6 months for 7 years is worth 11%
compounded semi-annually.
Given: R = P15,500; j = 0.11; t = 7; m = 2; n = 14; i = 0.055
Required:
Solution:
S S (1 i )
14
(
1
.
055
)
1
S 15500
(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 each 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:
= P100,000;
j = 0.105;
t = 5;
= 2;
n = 10;value
i = 0.0525
at theRend
of 5 years?
(c) What
ismthe
present
of the
Required:
(b) S
(c)
fund? (a) S10
Solution: (a)
(1 i ) k 1
Sk R
(1.0525)10 1
S10 100000
0
.
0525
S10 P1,272,563.84
Example 3.12
Given:
= P100,000;
j = 0.105;
t = 5;
= 2;
n = 10;value
i = 0.0525
at theRend
of 5 years?
(c) What
ismthe
present
of the
Required:
(b) S
(c)
fund? (a) S10
Solution: (b)
S S (1 i )
10
(
1
.
0525
)
1
S 100000
(1.0525)
0.0525
S P1,339,373.44
Example 3.12
Given:
= P100,000;
j = 0.105;
t = 5;
= 2;
n = 10;value
i = 0.0525
at theRend
of 5 years?
(c) What
ismthe
present
of the
Required:
(b) S
(c)
fund? (a) S10
Solution: (c)
S(1 i ) n
A
(1339373.44)(1.0525) 10
P802,935.46

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 ].
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 at 12% converted quarterly. Find how
much the loan is.
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 5. If money earns interest
at 5% compounded annually, how much will Dennis receive at the age
of 19?
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 16th deposit is made, (b) at the end of 2 years

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:
A(1 i )
A
28
(
1
.
01625
)
A 2500
(1.01625)
0.01625
P56,789.21
A

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 )
28
(
1
.
01625
)
1
S 2500
(1.01625)
0.01625
S P89,182.87

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
at 12%
converted
Given:
R = P4,500;
j = 0.12;
t = 4.5; m = 4; quarterly.
n = 18; i = 0.03 Find how much the
Required:
loan is.
Solution:
A(1 i )
1 (1.03) 18
4500
(1.03)
0.03
P 63,747.53

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 5.
If money earns interest at 5% compounded annually, how much
Given:
R = P2,500;
j =the
0.05;
14; m = 1; n = 14; i = 0.05
will Dennis
receive at
agetof= 19?
Required:
Solution:
S S (1 i )
14
(
1
.
05
)
1
S 2500
(1.05)
0.05
S P51,446.41

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
is P8,000;
made, (b)
the end
and 6 months?
Given:
R=
j =at0.04;
m = of
12;2 iyears
= 0.00333333
Required: (a) S16
(b) S
Solution: (a)
(1 0.00333333)16 1
S16 8000
0
.
00333333
S16 P131,250.32

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
is P8,000;
made, (b)
the end
and 6 months?
Given:
R=
j =at0.04;
m = of
12;2 iyears
= 0.00333333
Required: (a) S16
(b) S
Solution: (b)
30
(
1
0
.
00333333
)
1
S 8000
(1 0.00333333)
0.00333333
S P 252,809.05
Periodic Payment given the Present Value
(
1
i
)
i
A R
(1 i) R
n
i
[1 (1 i) ](1 i )
Periodic Payment given the Amount
(
1
i
)
1
S
S R
(1 i ) R
n
i
[(1 i ) 1](1 i )
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
Given:
= P50,000;
j = 0.12; t = 2; m = 12; n = 24; i = 0.01
should S
she
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
% compounded
quarterly,
payment.
Given:
= P1,200,000;
j = 0.155;find
t = the
8; mquarterly
= 4; n = 32;
i = 0.03875
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

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.
An amount of P350,000 is needed by Mr. Solis for his
business expansion at the end of 2 years. To accumulate
this amount, Mr. Solis will deposit equal amounts at the
beginning of each month for 2 years. How much must be
deposited monthly if money is worth 5% converted
monthly?

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
Given:
=semi-annual
P200,000; j =payment.
0.045; t = 3; m = 2; n = 6; i = 0.0225
Required: R
Solution:
i
R
[1 (1 i ) n ](1 i )
200000(0.0225)
R
6
[1 (1 0.0225) ](1 0.0225)
R P35,214.66

An amount of P350,000 is needed by Mr. Solis for his business
expansion at the end of 2 years. To accumulate this amount, Mr.
Solis will deposit equal amounts at the beginning of each month
for 2 years. How much must be deposited monthly if money is
=converted
worth 5%
Given:
P350,000;monthly?
j = 0.05; t = 2; m = 12; n = 24; i = 0.004166
S
Required: R
Solution:
Si
R
[(1 i ) n 1](1 i )
350000(0.0041 6 6 )
R
[(1 0.0041 6 6 ) 24 1](1 0.0041 6 6 )
R P13,838.99
Solving for time t given the Present Value

n
i
(
1
i
)
A
n
R
A
(
1
i
)
(
1
i
)
i
R(1 i )
(1 i )
i
i
A
A
n
1
log(1 i ) log 1
R(1 i )
R(1 i )
log 1
i
R(1 i )
n
n log(1 i ) log 1
R(1 i )
log(1 i )
log 1
R(1 i )
t
m log(1 i )

Solving for time t given the Amount S
n
i
(
1
i
)
1
S
n
S R
(
1
i
)
(
1
i
)
1
i
R (1 i )
Si
Si
n
n
1
(1 i ) (1 i ) 1
R (1 i )
R (1 i )
Si
log 1
R (1 i )
n
log(1 i )
Si
n log(1 i ) log 1
R(1 i )
Si
log 1
R (1 i )
t
m log(1 i )
Example 3.15
(a) How any full payments of P12,500 are needed to
discharge a loan of P60,000 if payments are made at the
beginning of each 3 months? Money is worth 14%
compounded
quarterly.
(b) How
much
be paid on the
Given:
= P60,000;
R = P12,500;
j = 0.14;
m = must
4; i = 0.035
last period
thepayment
obligation
completely?
Required:
(a) nto settle
(b) Last
that is
less than the regular payment
i
Solution: (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
(a) How any full payments of P12,500 are needed to
discharge a loan of P60,000 if payments are made at the
beginning of each 3 months? Money is worth 14%
compounded
quarterly.
(b) How
much
be paid on the
Given:
= P60,000;
R = P12,500;
j = 0.14;
m = must
4; i = 0.035
last period
thepayment
obligation
completely?
Required:
(a) nto settle
(b) Last
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?
(b) HowR much
must
be added
fund at the
= P100,000;
Given:
= P4,800;
j = 0.06;
m = 12;toi =the
0.005
S
end of the
to complete
P100,000?
Required:
(a) nterm
(b) Last
deposit thatthe
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)
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?
(b) HowR much
must
be added
fund at the
= P100,000;
Given:
= P4,800;
j = 0.06;
m = 12;toi =the
0.005
S
end of the
to complete
P100,000?
Required:
(a) nterm
(b) Last
deposit thatthe
is less
than the regular deposit to
complete a fund of P100,000
(1 0.005)19 1
Solution: (b)
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

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?
Catacotacos Corporation has bought a machinery worth
P600,000 in installment with interest at 17.25%
compounded semi-annually. The sale agreement requires
Catacotacos Corp. for a sequence of P100,000 semiannual payments, the first of which is due immediately. (a)
How many full payments of P100,000 are required? (b)
How much must be paid on the last payment date to settle
the debt completely?
Present Value and Amount of Deferred Annuity
A A(1 i ) d
= present value of the deferred annuity
d = no. of deferment periods
d = (m)(td)
td = no. of years payment is deferred
(1 i ) n 1
S S R
= amount of the deferred annuity
Example 3.17
Mary Frances, in starting her business, obtained a loan from a
bank that charges 6.5% compounded quarterly. She promised to
settle her obligation by a sequence of quarterly payments of
P5,000, the first of which starts at the end of 1 year and the last
payment
due at the
end ofm5=years.
Find
value and
Given:
R = P5,000;
j = 0.065;
4; d = 3;
n = the
17; present
i = 0.01625
amount ofand
thisagreement.
Required:
Solution:
A A(1 i ) d
1 (1 i ) n
d
A R
(
1
i
)
1 (1 0.01625) 17
3
A 5000
(
1
0
.
01625
)
0
.
01625
A P 70,269.28
Example 3.17
Mary Frances, in starting her business, obtained a loan from a
bank that charges 6.5% compounded quarterly. She promised to
settle her obligation by a sequence of quarterly payments of
P5,000, the first of which starts at the end of 1 year and the last
payment
due at the
end ofm5=years.
Find
value and
Given:
R = P5,000;
j = 0.065;
4; d = 3;
n = the
17; present
i = 0.01625
amount ofand
thisagreement.
Required:
Solution:
(1 i ) n 1
S R
(1 0.01625)17 1
S 5000
0
.
01625
S P97,001.10

A refrigerator can be purchased by paying P3,500 down
payment and a sequence of 12 monthly payments of
P1,250, the first to start at the beginning of the 4 th month. If
money costs 16% compounded monthly, find the cash
value of the refrigerator. Draw a time diagram to show the
solution.
Find the present value of a sequence of 20 quarterly
payments of P2,700 if the first payment is made at the end
of 1 year and if money is worth 18% compounded quarterly.
Draw the time diagram.
Periodic Payment given the Present Value A
A A(1 i) d
n
(
1
i
)
A
i
d
A R
(1 i) R
n
d
i
[1 (1 i) ](1 i)
Example 3.18
If money is worth 13.5% compounded semi-annually, what equal
payments will discharge a loan of P50,000 due now and which
must be made for 3 years, if the first payment is due at the end
of 2 years?
Given: = P50,000; j = 0.135; m = 2; t = 3; d = 1.5(2) = 3; n = 6; i = 0.0675
Required: R
Solution:
i
A
R
[1 (1 i ) n ](1 i ) d
50000(0.0675)
R
[1 (1 0.0675) 6 ](1 0.0675) 3
R P12,662.26

To discharge a loan of P80,000, what equal quarterly
payments are needed if the first payment is due at the end
of 1 year and the last payment is due at the end of 3 years?
Money is worth 12% compounded quarterly.
A set of jewelry has a cash price of P25,000. To make a
sale, a jeweler offers it to Ms. Aguilar with the agreement
that Ms. Aguilar pays P1,500 down and 10 equal monthly
payments due at the end of each month. If the first
payment is due at the end of 3 months and money is worth
24% compounded monthly, what is Ms. Aguilars monthly
payment?
Annuitys Value at any time

Before the Start of the Term ()
A A(1 i ) d
After the End of the Term (Y)
Y S (1 i )
At the Middle of the Term (X)
X S k RLk

A sequence of 12 semi-annual payments of P1,200 with the
first payment due at the end of 3 years. If money is worth
10.5% compounded semi-annually, find the value of the
annuity on the following dates: (a) now, (b) at the end of 2
years, (c) at the end of 8 years, (d) at the end of 12
years and (e) at the end of 5 years.
An annuity of P11,750 payable annually for 7 years is
deferred for 6 years. If money is worth 14% converted
annually, find the value of the annuity on the following
dates: (a) at the end of 6 years, (b) now, (c) at the end of
10 years, (d) at the end of 13 years, and (e) at the end of
17 years.

BUSANA1 Chapter 3 (2) : Annuities With Simple Data

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Chapter 3:

Annuity is a sequence of periodic

Payment interval time between two

1.Ordinary Annuity payments are made at the end of each period.

3.Deferred Annuity first payment is made at some later date.

Present Value of Ordinary Annuity (A)

Amount of Ordinary Annuity (S)

Relationship between A and S

Self-Check Exercise 3.1

Self-Check Exercise 3.1

Self-Check Exercise 3.1

Self-Check Exercise 3.1

Cash Value or Cash Price

Cash Price = Down Payment + A

Self-Check Exercise 3.2

Self-Check Exercise 3.2

Self-Check Exercise 3.2

Amount of an Annuity at Any Time (Sk)

k = number of deposits or payments made

Self-Check Exercise 3.3

Self-Check Exercise 3.3

Self-Check Exercise 3.3

Self-Check Exercise 3.3

Remaining liability just after the kth payment

Remaining liability just before the kth payment

Self-Check Exercise 3.4

Self-Check Exercise 3.4

Self-Check Exercise 3.4

Self-Check Exercise 3.4

Self-Check Exercise 3.4

Self-Check Exercise 3.4

Self-Check Exercise 3.4

Periodic Payment given the Present Value A

Periodic Payment given the Amount S

Self-Check Exercise 3.5

Self-Check Exercise 3.5

Self-Check Exercise 3.5

Solving for time t given the Present Value A

Solving for time t given the Amount S

Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

Let x be the amount needed to complete the P900,000 on the 60 th month.

Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

Let x be the amount needed to complete the P900,000 on the 60 th month.

Given: S = P900,000; R = P10,000; j = 0.16; m = 12;

Solving for Rate j

(n 2 1)i 2 6(n 1)i 12 1

(n 1)i 6(n 1)i 12 1

(482 1)i 2 6(48 1)i 12 1

Present Value of Annuity Due ()

Relationship between and

Self-Check Exercise 3.7

Self-Check Exercise 3.7

Self-Check Exercise 3.7

Self-Check Exercise 3.7

Self-Check Exercise 3.7

Self-Check Exercise 3.7

Self-Check Exercise 3.7

Periodic Payment given the Present Value

Periodic Payment given the Amount

Self-Check Exercise 3.8