Solved Problems in Annuity Due

Problem No. 1.

On retirement, Mr. Caloy finds that her company pension calls for payment of $750 to her or to
her estate if she dies at the beginning of each month for 25 years. Find the present value of her pension
at 8% compounded quarterly.

. 08
i=
4

n = 4(25) = 100

A[(1 + i)n−1 − 1]
P= +A
(1 + i)n−1 i

. 08 100−1
750[(1 + 4 ) − 1]
P= 100−1 + 750
. 08 . 08
(1 + ) ( )
4 4

P = $32,970.24

Problem No. 2.

Under a factory savings plan, a machine operator deposits $75 at the beginning of each month
for 4 years, and the management guarantees accumulation at 10% compounded monthly. How much
stands to the work man’s credit at the end of 5 years.

A[(1 + i)n+1 − 1]
F= −A
i
. 10
i=
12

n = 5(12) = 60

. 10 60+1
75[(1 + 12 ) − 1]
F= − 75
. 10
12

F = $5,856.18
Problem No. 3.

Ms. Angelina Bernardo borrows $45,000 at 5% effective annual interest. She must pay back the
loan over 15 years with uniform monthly payments due on the first day of each month. What does Ms.
Bernardo pat each month?

A[(1 + i)n−1 − 1]
P= +A
(1 + i)n−1 i

. 05
i=
12

n = 15(12) = 180

. 05 180−1
A[(1 + ) − 1]
45,000 = 12 +A
. 05 180−1 . 05
(1 + 12 ) ( 12 )

A = $354.38

Problem No. 4.

Dr. Carolina Tabo wishes to have $150,000 when he retires 15 years from now. If he can expect
to receive 6% annual interest, how much she set aside in each of 20 equal annual beginning of year
deposits?

A[(1 + i)n+1 − 1]
F= −A
i

A[(1 + .06)21 − 1]
150,000 = −A
. 06

A = $3846.87
Problem No. 5.

Mr. Kulasisi owes $90,000 with interest at 12% payable semi-annually. What equal payments at the
beginning of each 6 months for 4 years will discharge his debt?

A[(1 + i)n−1 − 1]
P= +A
(1 + i)n−1 i

. 12
i=
2

n = 4(2) = 8

. 12 8−1
A[(1 + 2 ) − 1]
90,000 = +A
. 12 8−1 . 12
(1 + 2 ) ( 2 )

A = $13,672.86

Problem No. 6.

Instead of paying $25,000 in annual rate for office space at the beginning of each year for the
next 15 years, an engineering firm has decided to take out a 15-year $250,000 loan for a new building at
6% interest. The firm will invest $25,000 of the rent saved and earn 18% annual interest on that amount.
What will be the difference between the firm’s annual revenue and expenses?

A[(1 + i)n−1 − 1]
P= +A
(1 + i)n−1 i

A[(1 + .06)10−1 − 1]
250,000 = +A
(1 + .06)10−1 (.06)

A = 32,044.33(monthly amortization)

Annual income = 25,000(1.18) = 29,500

Difference = 32,044.33 − 29,500

Difference = $2,544.33
Problem No. 7.

At what interest rate payable quarterly will payment of $500 at the beginning of each 4 months
for 8 years discharge a debt of $10,000 due immediately.

A[(1 + i)n−1 − 1]
P= +A
(1 + i)n−1 i

i 24−1
500[(1 + 3) − 1]
10,000 = + 500
i 24−1 i
(1 + 3) 3

i =4.97%

Problem No. 8.

A teacher will deposit $500 with a savings and loan association at the beginning of each 4 months for 10
years. If the association pays interest at the rate of 7% every 4 months, find the sum of his credit just
after the last deposit.

A[(1 + i)n+1 − 1]
F= −A
i
. 07
i=
3

n = 10(3) = 30

. 07 30+1
500[(1 + 3 ) − 1]
F= − 500
. 07
3

F = $21,876.46
Problem No. 9.

Engr. Carlo Gervacio loan an amount of $150,000 at the Diagon Alley Bank at 8% compounded
annually. How much is his monthly payment if he is required to pay at the beginning of the first day of
the month for 20 years?

i 12
(1 + i)1 = (1 + )
12

1
i 12
(1 + .08) = (1 + )
12

i = 0.0772

n = 20(12) = 240

A[(1 + i)n−1 − 1]
P= +A
(1 + i)n−1 i

0.0772 240−1
A[(1 + 12 ) − 1]
150,000 = 240−1 +A
0.0772 0.0772
(1 + ) ( )
12 12

A = $1,220.79

Problem No. 10.

Mr. Carlos La babo wishes to have $50,000 when he retires 12 years from now. If he can expect
to receive 6% annual interest, how much he set aside in each 12 equal annual beginning of year
deposits?

A[(1 + i)n+1 − 1]
F= −A
i

A[(1 + .06)12+1 − 1]
50,000 = −A
. 06

A = $2,796.09