1. TIME’S UP!

Find the cash price of

Television Set.
monthly payments of
P2,000 for 1 year
with interest rate of 8%
compounded monthly
2. TIME’S UP!
Find the present value of a
loan:
Semi-annual payments of
Php8,000 for 10 years
with interest rate of 6%
compounded semi-annually
 Deferred Payment!
3 months

₱2,325.36/ month

1 year
Deferred Payment!
3 months

₱2,325.36/month
1 year
Deferred Annuity - an
annuity that does not
begin until a given time
interval has passed.
Problem. Suppose Mr. Gran wants
to purchase a cellular phone. He
decided to pay monthly for 1 year
starting at the end of the month.
How much is the cost of the
cellular phone if his monthly
payment is P2,500 and interest is
at 9% compounded monthly?
Given:
R = P2,500
t = 1 year
r = 9% or 0.09
m = 12
n = 12
Find: P
What if Mr. Gran is considering
another cellular phone that has a
different payment scheme? In this
scheme, he has to pay P2,500 for 1
year starting at the end of the
fourth month. If the interest rate is
also 9% converted monthly, how
much is the cash value of the
cellular phone?
In this example, Mr. Gran pays
starting at the end of the 4th
month to the end of the 15th
month.
Now, how do we get the
present value of this
annuity?
Step 1: there are no skipped
payments.
In this example, Mr. Gran pays
starting at the end of the 4th
month to the end of the 15th
month. The time diagram for this
option is given by:
Artificial Payments
Given:
R = P2,500
r = 9% or 0.09
m = 12
n = 15
Find: P
Step 1: there are no skipped
payments.

Step 2: Calculate the

present value of the
payments made during the
period of deferral.
Artificial Payments
Given:
R = P2,500
r = 9% or 0.09
m = 12
n=3
Find: P
Step 3: Since the
payments in the period of
deferral are artificial
payments, we subtract the
present value of these
payments. We obtain:
 Assumed no
35,342.49 skipped payments
7,388.89 Artificial payments

27,953.60
*Thus, the present value of the cellular
phone is P27,953.60
Formula to find the present value
of deferred simple annuity:
−𝑘 − 𝑘+𝑛
𝑅 1 + 𝑟/𝑚 − 1 + 𝑟/𝑚
𝑃= 𝑟
𝑚
Where:
𝑛 = 𝑡𝑜𝑡𝑎𝑙 𝑛𝑜. 𝑎𝑐𝑡𝑢𝑎𝑙 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠
𝑘 = 𝑛𝑜. 𝑜𝑓 𝑎𝑟𝑡𝑖𝑓𝑖𝑐𝑖𝑎𝑙 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠
Using the formula we can
easily compute the
deferred annuity
Given:
R = P2,500
r = 9% or 0.09
m = 12
n = 12
k= 3
Find: P
 −𝑘 − 𝑘+𝑛
𝑅 1 + 𝑟/𝑚 − 1 + 𝑟/𝑚
𝑃= 𝑟
𝑚
−3 − 3+12
2,500 1 + 0.09/12 − 1 + 0.09/12
𝑃=
0.09
12
Period of Deferral - time
between the purchase of
an annuity and the start
of the payments for the
deferred annuity.
Find the period of deferral in
each of the following
deferred annuity problem
(one way to find the period
of deferral is to count the
number of artificial
payments (𝑘)
Monthly payments of
P10,000 for 8 years that will
start 6 months from now.
P

0 1 2 3 4 5 6 7 8 9 10

5 months or 5 periods
Semi-annual payments of
P15,000 for 10 years that
will start 5 years from now
P

0 0.5 1 1.5 2 2.5 . . . 4.5 5 5.5 6

9 periods or 9 half-year intervals

Payments of P5,000 every 4
months for 3 years that will
start five years from now.
P

0 4m 8m 1y 1y,4m . . . 4y,8m 5y

14 periods or 14 4-month intervals

Payments of P2,000 every 3
months for 8 years that will
start after 6 years.
P

0 3m 6m 9m 1y 1y,3m . . . 6y
24 periods or 24 3-month intervals
Payments of P1,000 every
other month for 2 years that
will start after 3 years .
P

0 1m 3m 5m 7m 9m . . . 3y
18 periods or 18 2-month intervals
Payments of P500 every month
for 1 year that will start at the
end of the third month .

0 1m 2m 3m 4m 5m . . . 13 14
2 periods or 2 months
Payments of P200 every 5
months for 3 years that will
start at the end of 5 years.

0 5m 10m 15m 20m 25m . . . 55m 5y

11 periods or 11 5-month intervals

Open MS Excel
Find the present value (P):

R = Php15,000
t = 2 years
r = 2.8%
m = 12
k=9
n = 24
Let’s try to apply it!
Problem # 1
Given:
R = P2,250
r = 8%
m = 12
n = 12
k= 4
Answer:

Find: P
Problem # 2
Given:
R = P750
r = 10%
m = 12
n = 24
k= 3
Answer:

Find: P
Let’s do some recap!
Question:

How is deferred simple

annuity differ from an
ordinary simple annuity?
Quiz: In a short bond
paper, solve the
following problems.
Show your solution.
1. A savings account may allow
the owner to withdraw
P30,000 semi-annually for 3
years starting at the end of 3
years. How much is the savings
if the interest rate is 4%
converted semi-annually?
2. Ruben bought a laptop that
is payable by monthly
installment of P1,800 for 12
months starting 3 months from
now. How much is the cash
value of the laptop if interest is
at 10% convertible monthly?
ANSWERS
Given:
R = P30,000
t = 3 years
r = 4% or 0.04
m =2
n =6
k= 5
Find: P
 −𝑘 − 𝑘+𝑛
𝑅 1 + 𝑟/𝑚 − 1 + 𝑟/𝑚
𝑃= 𝑟
𝑚
−5 − 5+6
30,000 1 + 0.04/2 − 1 + 0.04/2
𝑃=
0.04
2
Given:
R = P1,800
t = 12 months
r = 10% or 0.10
m = 12
n = 12
k= 2
Find: P
 −𝑘 − 𝑘+𝑛
𝑅 1 + 𝑟/𝑚 − 1 + 𝑟/𝑚
𝑃= 𝑟
𝑚
−2 − 2+12
1,800 1 + 0.10/12 − 1 + 0.10/12
𝑃=
0.10
12
8. Mr. Canlapan deposited his
money from selling his old vehicle.
The fund would allow him to
withdraw P45,000 semi-annually
for 5 years starting at the end of 1
year. How much is the amount
deposited if the interest rate is 2%
converted semi-annually?
9. A cellular phone may be
purchased at P1,500 payable
monthly for 18 months. The first
payment is due after 3 months.
How much is the cellular phone if
the interest rate is 12%
convertible monthly?
Tomorrow bring the following
for your PORTFOLIO:

• 2 LONG PAPER FOLDER

• 4 BINDER CLIPS
• 4 LONG BOND PAPERS

*This will be recorded as output (50%).

Time diagram:
Given:

R = P10,000
r = 8% or 0.08
m= 4
n = 4 x 5 = 20
k = 4 x 20 = 80
t = 5 years
Find: P
 −𝑘 − 𝑘+𝑛
𝑅 1 + 𝑟/𝑚 − 1 + 𝑟/𝑚
𝑃= 𝑟
𝑚
−80 − 80+20
0.08 0.08
10,000 1+ − 1+
𝑃= 4 4
0.08
4
2. A credit card company offers a
deferred payment option for the
purchase of any appliance. Rose plans
to buy a smart television set with
monthly payments of P4,000 for 2
years. The payments will start at the
end of 3 months. How much is the
cash price of the TV set if the interest
rate is 10% compounded quarterly?
Time diagram:
Given:
R = P4,000
r = 10% or 0.10
m= 4
𝑚𝑗 = 12
𝑡 = 2 years
n = 12 x 2 = 24
k= 2
Find: P
 −𝑘 − 𝑘+𝑛
𝑅 1+𝑗 − 1+𝑗
𝑃=
𝑗

4,000 1 + 0.008265 −2 − 1 + 0.008265 − 2+24

𝑃=
0.008265
3. Emma availed of a cash loan
that gave her an option to pay
P10,000 monthly for 1 year. The
first payment is due after 6
months. How much is the
present value of the loan if the
interest rate is 12% converted
monthly?
Time diagram:
Given:
R = P10,000
r = 12% or 0.12
m = 12
n = 12
k= 6
Find: P
 −𝑘 − 𝑘+𝑛
𝑅 1 + 𝑟/𝑚 − 1 + 𝑟/𝑚
𝑃= 𝑟
𝑚
−6 − 6+12
0.12 0.12
10,000 1+ − 1+
𝑃= 12 12
0.12
12
4. Adrian purchased a laptop through
the credit cooperative of their
company. The cooperative provides an
option for a deferred payment. Adrian
decided to pay after 4 months of
purchase. His monthly payment is
computed as P3,500 payable in 12
months. How much is the cash value of
the laptop if the interest rate is 8%
convertible monthly?
Time diagram:
Given:
R = P3,500
t = 12 months
r = 8% or 0.08
m = 12
n = 12
k= 4
Find: P
 −𝑘 − 𝑘+𝑛
𝑅 1 + 𝑟/𝑚 − 1 + 𝑟/𝑚
𝑃= 𝑟
𝑚
−4 − 4+12
0.08 0.08
3,500 1+ − 1+
𝑃= 12 12
0.08
12
5. Mr. and Mrs. Mercado decided to
sell their house and to deposit the fund
in a bank. After computing the interest,
they found out that they may withdraw
P350,000 yearly for 4 years
starting at the end of 7 years when
their child will be in college. How much
is the fund deposited if the interest
rate is 3% converted semi-annually?
Time diagram:
Given:
R = P350,000
r = 3% or 0.03
m= 2
𝑚𝑗 = 1
𝑡 = 4 years
n=4
k=6
Find: P
 −𝑘 − 𝑘+𝑛
𝑅 1+𝑗 − 1+𝑗
𝑃=
𝑗

4,000 1 + 0.030225 −2 − 1 + 0.030225 − 2+24

𝑃=
0.030225