Annuity

Exercise
1. Find the missing value in each of the following:
PV = 150 000 Pp = 3,522.78 i = 0.005 n = 48
PV = 15,454.33 Pp = 500 i =0.025 n = 60
PV = 43,230.08 Pp = 2,500 i = 0.04 n = 30
PV = 20,000 Pp = 490.73 i = 0.0175 n = 72
2. A credit cooperative recently offered a 36-month loans at 4.15% compounded monthly for typhoon
victim members. If a member can afford only to pay P750 a month, how much can he borrow from the
cooperative?
What is the total interest he will pay for this loan?
FV= 750 (1-(1+.00346)-36

.00346
= 25,344.99
Interest= (750 x 36) – 25,344.99
=27,000 – 25,344.99
=1,655.01
3. An insurance company offers a retirement package for 50-70 years old with 7.5% compounded
annually and with the monthly premium of P225 for 20 years. Mr. Gregorio, a 50 year old employee
decides to avail of the package. In his retirement at 65, how much is the cash value of the contract?
FV= (225 x 12) (1+.075)-15

.075
= 2,700(26.1183647)
= 70,519.58
4. If the endowment for a certain insurance package is P1, 500, 000, how much will the quarterly
payment be if the interest is 6.9% compounded annually for 20 years?
Pp= 1,500,000 / (1+.069)20-1

.069
= 36,990.81 / 4
Quarterly payment=9,247.70
5. Construct a balance sheet for a loan of P150, 000 paid in 8 equal quarterly payment at 2.8% interest
per quarter on the unpaid balance.
PAYMENT INTEREST AMORTIZATION PV

150,000
21,188.55 4,200 16,988.55 133,011.45
21,188.55 3,724.32 17,464.23 115,547.22
21,188.55 3,235.32 17,953.23 97,593.99
21,188.55 2,732.63 18,455.92 79,138.07
21,188.55 2,215.87 18,972.68 60,165.39
21,188.55 1,684.63 19,503.92 40,661.47
21,188.55 1,138.52 20,050.03 20,611.4
21,188.55 577.12 20,611.4 0
Exercises
1. You want to purchase a pick-up truck for P723 000. The car dealer offers you 0% financing for 60
months or a P30 000 rebate. You can get 7.2% financing for 60 months at the local bank. Which
of these two options will you accept? Give your reason.
CAR DEALER OPTION
CAR DEALER OPTION BANK OPTION

PRICE P723 000 P723 000
CASH REBATE 30,000 0
PV 693,000 P723 000
T 60 MONTHS 60 MONTHS
INTEREST 0 7.2%
AMOUNT 693,0000 775,056
2. A crushing machine which a company bought to replace the broken one amounted to P178 000. It
paid 15% down payment and amortized the rest with equal monthly payments over a 5-year period. If
the company must pay 8.75% compounded monthly, what is the monthly amortization? How much
interest will be paid?
178,000 X 15%= 26,700 DOWNPAYMENT
178,000 – 26,700= 151,300 REMAINING BALANCE
Pp= 151,300/ (1+.021875)5-1

.021875
= 151,300/5.223587723
= 28,964.77
3. Mark, an Engineering student needed a computer for his Auto Cad lessons. He purchased a laptop
which costs P39 000. His credit card charges 1.75% compound interest per month to be repaid in 18
months. How much is his monthly payment. How much total interest will he pay?
Pp= 39,000 / (1+.0175)-18

.0175
Monthly paymentpayment= 2,544.55
=2,544.55 X 18
=45,801.90
I=45,801.90 – 39,000
=6801.90
4. A college student availed himself a student loan offered by his university. He loaned P35 000 at 3.5%
interest compounded monthly. After graduating in 2 years, the student must amortize the loan in the
next 4 years by making equal monthly payments. What will the payments be? What total interest will
the student pay?
PV= 35,000 (1-(1+.035)-2
.035
= 66,489.30
=66,489.30- 35,000
I=31,489.30
5. A public school teacher availed herself a housing loan amounting to P545 000 offered by HMDF
(Home Mortgage Development Fund) 8 years ago by paying 20% down and signing a 15 year mortgage
at 12.6% compounded monthly. At the end of the 8 th year, a lending institution offered to refinance the
unpaid balance in a 10-year mortgage at 8.2% compounded monthly. Will she take the offer? How much
will she save in the new payment scheme?
P545 000 x 20%= 109,000 down payment
P545 000- 109,000= 436,000 remaining balance

PV= 436,000 (1-(1+.126)-7 PV= 436,000 (1-(1+.126)-7
.126 .126
= 1,952,505.408 =2,899,386.43
6. A food cart service company received two offers of purchase. One buyer offers to pay the unit P100
000 in cash now. The second offers to pay the company’s unit P10 000 and monthly payments of P1 200
for 10 years. If the company accepts the second offer what annual nominal compounding rate will the
company receive for financing this purchase?
FIRST OFFER 2ND OFFER

100,000 10,000 + (1200 X 120 MONTHS)
10,000+ 144,000 = 152,000 TOTAL AMOUNT
144,000/ 10
ANNUAL PAYMENT= 14,400
7. An investor wants to earn an annual interest rate of 7.4% on a 38.5-week T-bill with a maturity value
of P50 000. How much should the investor pay for the T-bill?
PV= 50,000 (1-(1+.074)-38.5/48

.07
= 37,599.03
8. How much should a P25 000 face value zero coupon bond, maturing in 5 years, be sold for now, if its
rate of return is to be 6.5% compounded annually?
Pp= 25,000 / (1+.065)5-1

.065
= 25000/5.693640976
=4,390.86
9. How long will it take an investor’s money if it is invested at 8.5% compounded daily? 8.5 compounded
annually?
INSUFFICIENT INFORMATION
10. A real estate developer is offering their housing units for P1 500 and requires a 20% down payment.
The interested buyer is given a choice of 20, 15, 10 or 5-year financing, all at 8.76% compounded
monthly.
(a) What is the monthly payment for the 20-year choice? 5-year choice?
360,000 x 20%= 72,000 down payment
360,000 – 72,000=288,000 REMAINING BALANCE
PV=288,000 / (1+.007)240-1
.007
= 288,000/(619.18)
=465.13
PV=288,000 / (1+.007)60-1
.007
= 288,000/(74.25)
=3,878.79

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Exercise

1. Find the missing value in each of the following:

PV = 150 000 Pp = 3,522.78 i = 0.005 n = 48

PV = 15,454.33 Pp = 500 i =0.025 n = 60

PV = 43,230.08 Pp = 2,500 i = 0.04 n = 30

PV = 20,000 Pp = 490.73 i = 0.0175 n = 72

What is the total interest he will pay for this loan?

FV= 750 (1-(1+.00346)-36

Interest= (750 x 36) – 25,344.99

FV= (225 x 12) (1+.075)-15

Pp= 1,500,000 / (1+.069)20-1

PAYMENT INTEREST AMORTIZATION PV

CAR DEALER OPTION BANK OPTION

178,000 X 15%= 26,700 DOWNPAYMENT

178,000 – 26,700= 151,300 REMAINING BALANCE

Pp= 151,300/ (1+.021875)5-1

Pp= 39,000 / (1+.0175)-18

Monthly paymentpayment= 2,544.55

PV= 35,000 (1-(1+.035)-2

P545 000 x 20%= 109,000 down payment

P545 000- 109,000= 436,000 remaining balance

FIRST OFFER 2ND OFFER

PV= 50,000 (1-(1+.074)-38.5/48

Pp= 25,000 / (1+.065)5-1

360,000 x 20%= 72,000 down payment

360,000 – 72,000=288,000 REMAINING BALANCE

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