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Annuities

Annuity

is a series/sequence of
payments (usually equal) made at equal
intervals of time.

Installment payments
Monthly payments/rentals
Insurance premiums
Monthly retirement benefits
Weekly / monthly wages

Types of Annuity
1. Annuity Certain
Annuity payable for a definite duration
Payments begin and end at fixed times

2. Contingent Annuity or
Annuity Uncertain
Annuity payable for an indefinite
duration (beginning or termination is
dependent on some certain event)
Payments are not certain to be made

Kinds of Annuity Certain


Simple

Annuity
The interest conversion
period () is equal to the
payment interval ()

General Annuity
The interest conversion
period () is not equal to
the payment interval ()

Classification of Simple
Annuity
Ordinary
Annuity

Annuity in which periodic payment () is made at


the end of each payment interval.

Annuity Due ()
Annuity in which periodic payment () is made at
the beginning of each payment interval

Deferred Annuity ()
Annuity in which periodic payment () is neither at
the beginning nor end of each payment interval
but some later date.

ORDINARY ANNUITY
FORMULAS
Finding F when given A
given F

(1 i ) n 1
F A

Finding P when given A


n
given P(1 i ) 1

P A

i (1 i )

Finding A when

i
A F

n
(1 i ) 1
Finding A when
n

i (1 i )
A P

n
(1 i ) 1

Source: Sullivan, William G., Elin M. Wicks and James T. Luxhoj. (2006). ENGINEERING ECONOMY,
13TH ED. Pearson-Prentice Hall. p104-130

FORMULAS
Finding F when given A
given F

(1 i ) n 1
F A

Finding P when given A


n
given P(1 i ) 1

P A

i (1 i )

Finding A when

i
Uniform
ASeries
F

n
(
1

i
)

Compound
amount
factor
Finding A when
n

i (1 i )
A P

n
(1 i ) 1

Source: Sullivan, William G., Elin M. Wicks and James T. Luxhoj. (2006). ENGINEERING ECONOMY,
13TH ED. Pearson-Prentice Hall. p104-130

FORMULAS
Finding F when given A
given F

Finding A when

Finding P when given A


n
given P(1 i ) 1

Finding A when
n

(1 i ) n 1
F A

P A

i (1 i )

i
A F
Sinking

n
fund factor (1 i ) 1
i (1 i )
A P

n
(1 i ) 1

Source: Sullivan, William G., Elin M. Wicks and James T. Luxhoj. (2006). ENGINEERING ECONOMY,
13TH ED. Pearson-Prentice Hall. p104-130

Ordinary Annuity FORMULAS


Finding F when given A
given F

(1 i ) n 1
F A

Finding A when

i
A F

n
(1 i ) 1

Finding P when given A


Finding A when
n
n

Uniform i (1 i )
given P(1 i ) 1
A

P
P A
series

n
n
present (1 i ) 1
i (1 i )
factor
Source: Sullivan, William G., Elin M. Wicks andworth
James T. Luxhoj.
(2006). ENGINEERING ECONOMY,
13TH ED. Pearson-Prentice Hall. p104-130

FORMULAS
Finding F when given A
given F

(1 i ) n 1
F A

Finding A when

i
A F

n
(1 i ) 1

Finding P when given A


Finding A when
n
n
i (1 i )
given P(1 i ) 1
Capital
A

P
P A

n
n recovery
(1 i ) 1
i (1 i ) factor
Source: Sullivan, William G., Elin M. Wicks and James T. Luxhoj. (2006). ENGINEERING ECONOMY,
13TH ED. Pearson-Prentice Hall. p104-130

A man deposits P 12,200


every end of 6 months in an
account
paying
5.5%
compounded semi-annually.
What amount is in the
account at the end of 9 years
and 6 months?

A car was bought with a


down payment of P200,000
and P18,000 at the end of
every month for 3 years to
discharge all principal and
interest at the rate of 12%
compounded monthly. Find
the cash value of the car.

An LED television set is


purchased
with
a
down
payment of P30,000 and
P4,624.50 at the end of each
month for 2 years to discharge
all principal and interest at
15% compounded monthly.
Find the cash value of the
television set.

Mrs. Alvarez pays P250,000


cash and the balance in 24
quarterly payments of P45,817
for a house and lot. If money is
worth 10% converted quarterly,
a.) how much did Mrs. Alvarez
pay in total?
b.) what is the cash value of
the house and lot?

How much monthly deposit must be


made for 5 years and 5 months in
order to accumulate P 120,000 at
15% compounded monthly?

What sum will be paid at the end of


each quarter for 6 years and 6 months,
if the present value is P 50,500 and
interest is paid at 10% compounded
quarterly?

Dino wants to buy a car worth


P740,000. He can pay 40% of the
price as down payment and the balance
payable every end of the month for 60
months, how much must he pay
monthly at 15% compounded monthly?

Pam wants to have P 750,000 at the end


of 5 years for her graduation expenses.
She plans to deposit a certain sum, to
achieve this at the end of each month.
If her bank pays 15% compounded
monthly, what should be the amount of
her monthly deposit?

How much must be paid for 48 months


to settle an obligation of P 123,400, if
money is worth 12% compounded
monthly?

SEATWORK

SEATWORK
1. A man deposits P12,200
every end of 6 months in
an account paying 5 %
compounded semiannually. What amount is
in the account at the end of
9 years and 6 months?

2. A home video entertainment set


is offered for sale for P18,000
down payment and P1800 every 3
months for the balance, for 18
months. If interest is to be
computed at
10% converted
quarterly, what is the cash price
equivalent of the set?

3. On May 31, 2007, Connie invested P


185,000 at 10% compounded monthly.
The investment is to be paid out in 90
equal monthly payments with the first
payment on June 30,2007. What is the
size of each monthly payment?
4. Cocoy wants to accumulate P 230,000 in
9.5 years. Equal deposits are made at the
end of each quarter in an account that
pays 15% compounded quarterly. What
is the size of each deposit?

Finding the
INTEREST RATE
of an Annuity

1.) Solve for i using the quadratic formula:

where

Type I: F and A are


given

Type II: P and A


are given

a
b
c
c
*Type
1: use the minus sign of the quadratic formula
*Type 2: use the plus sign of the quadratic formula

2. After solving for , find :

L.A. Corporation is planning to


create a fund by depositing
P1,520 every quarter for 8 years
in a bank that promises to pay a
fixed rate over the entire term.
Find the rate converted quarterly
if the amount in the fund at the
end of the term is P60,000.

Novo Ventures offers a TV set for


P45,000 cash.
The set is also
available on installment basis at
P15,000 down payment and monthly
installments of P 2,240 for 15
months. If interest is compounded
monthly, find the rate used.

At
what
nominal
rate
compounded quarterly is
the loan of P48,000 be paid
with equal payment of
P2,400 at the end of each 3
months for 6 years?

If P 5,050 periodic payment per


quarter for 10 years amount to P
550,000; what is the rate of
interest?

1.) If P 5,050 periodic payment per quarter for 10


years amount to P 550,000; what is the rate of
interest?
2.) Find the interest rate compounded semi-annually
on P44,400 whose periodic deposit of P 4,400
every end of six months for 6 years and 6 months.
3.) A dining set worth P 12,200 cash is purchased by
a down payment of P 5,800 and monthly payment
of P580 for 18 months. Find the rate of interest
compounded monthly.

4.) An item can be purchased for P 14,500 or


for P 3,800 down payment and installment
payment of P 1,030 for 36 months. Find the
interest rate compounded semi- annually.
5.) A trust fund is to be formed by depositing
P4,500 every quarter for 5 years in a bank
that promises to pay a fixed rate over the
entire term. If the amount of the fund at the
end of the term is P 85,000 find the rate
compounded quarterly.

Finding the TERM of


an Annuity

Doro borrows P20,000 with interest


at 5.5% compounded quarterly. He
agrees to pay P850 at the end of
each quarter. How long must he
pay?

Ms. Marie Abellar invest her retirement


benefits

of

3.8

million

at

9%

compounded monthly. If she withdraws


the money in monthly payments of
P50,000, how many regular payments
will she get?

Find the time and the number of semiannual payments of P480 each and the
concluding deposit, which must be made
to accumulate P18,500, if money earns
interest
annually.

at

7%

compounded

semi-

A man deposits P 5,200 at the end


of each three months in an account
paying 14% converted quarterly. In
order to accumulate P105,000, how
many regular deposit every quarter
must he make and what is the size of
the concluding payment, if one is
needed?

Annuity Due - Formulas


Finding F when given A

(1 i )
F A
i

n 1

Finding P when given A

1 (1 i )
P A
i

n 1

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