SIMPLE ANNUITY

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Learning Outcomes:
At the end of the lesson, you are expected to:

1. illustrate simple annuity

2. find the future and present values of simple annuity.

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Where people pay
by installment?

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Annuity
• a sequence of payments made at equal (fixed) intervals or periods of
time.

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Definition of Terms
• Payment interval-the time between successive payments
• Term of an annuity, 𝒕-time between the first payment interval and
last payment interval
• Regular or periodic payment, 𝑹-the amount of each payment
• Amount (Future Value) of an annuity, 𝑭-sum of future values of all
payments to be made during the entire term of the annuity.
• Present value of an annuity,𝑷-sum of present values of all the
payments to be made during the entire term of the annuity

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Annuities may be classified in different ways, as follows:

Annuities
Simple Annuity-an annuity where General Annuity-an annuity
According to payment interval the payment interval is the same where the payment interval is not
and interest period as the interest period the same as the interest period

Ordinary Annuity-a type of Annuity Due-a type of annuity in

annuity in which the payments which the payments are made at
According to time of payment are made at the end of each the beginning of each payment
payment interval interval
Annuity Certain-an annuity in Contingent Annuity-an annuity in
According to duration which payments begin and end at which the payments extend over
definite times an indefinite length of time

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Simple Annuity

Example of a simple annuity-installment payment for an appliance

at the end of each month with interest compounded monthly.

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Simple Ordinary Annuity

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Example 1
• Suppose Mrs. Remoto would like to save Php 𝟑𝟎𝟎𝟎 at the
end of each month, for six months in a fund that gives 𝟗%
compounded monthly. How much is the amount or future
value of her savings after 𝟔 months?

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Solution
Given:
𝑹 = 3,000
𝒕 = 6 𝑚𝑜𝑛𝑡ℎ𝑠
𝒓 = 9% = 0.09
𝒏 = 12
𝒎 = 𝑛𝑡 = 12 × 0.5 = 6
𝑟 0.09
𝒋= = = 0.0075
𝑛 12

Find: 𝐹 =?

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Solution

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Solution

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Solution

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Solution
1+𝐽 𝑚−1
𝐹=𝑅
𝑗
1 + 0.0075 6 − 1
𝐹 = 3000
0.0075
𝑭 = 𝟏𝟖, 𝟑𝟒𝟎. 𝟖𝟗

Hence, Mrs. Remoto will be able to save Php𝟏𝟖, 𝟑𝟒𝟎. 𝟖𝟗 after 6

months.

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Example 2
• In order to save for her high school graduation, Marie
decided to save Php 𝟐𝟎𝟎 at the end of each month. If
the bank pays 𝟎. 𝟐𝟓% compounded monthly, how much
will her money be at the end of 𝟔 years?

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Solution
Given:
𝑹 = 200
𝒏 = 12
𝒓 = 0.25% = 0.0025
𝒕 = 6 𝑦𝑒𝑎𝑟𝑠
𝒎 = 𝑛𝑡 = 12 × 6 = 72 𝑝𝑒𝑟𝑖𝑜𝑑𝑠
𝑟 0.0025
𝒋= = = 0.0002083ത
𝑛 12

Find: 𝐹 =?

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Solution
1+𝐽 𝑚 −1
𝐹=𝑅 𝑗
3 72 −1
1+0.000208ഥ
𝐹 = 200 0.000208ഥ
3
𝑭 = 𝟏𝟒, 𝟓𝟎𝟕. 𝟎𝟐

Thus, Marie will be bale to save Php 𝟏𝟒, 𝟓𝟎𝟕. 𝟎𝟐 for her graduation.

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World
 Example 3
• Suppose Mrs. Remoto would like to know the present value
of her monthly deposit of Php 𝟑𝟎𝟎𝟎 when interest is 𝟗%
compounded monthly. How much is the present value of her
savings at the end of 𝟔 months?

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Solution
Solution:
Given:
𝑹 = 3,000
𝒕 = 6 𝑚𝑜𝑛𝑡ℎ𝑠
𝒓 = 9% = 0.09
𝒏 = 12
𝒎 = 𝑛𝑡 = 12 × 0.5 = 6
𝑟 0.09
𝒋= = = 0.0075
𝑛 12

Find: Present value 𝑃

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Solution

1 − 1 + 𝑗 −𝑚
𝑃=𝑅
𝑗
−6
1 − 1 + 0.0075
𝑃 = 3000
0.0075
𝑷 = 𝟏𝟕, 𝟓𝟑𝟔. 𝟕𝟗

Thus, the present value is Php 𝟏𝟕, 𝟓𝟑𝟔. 𝟕𝟗.

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Example 4
• Mr. Ribaya paid Php 𝟐𝟎𝟎, 𝟎𝟎𝟎 as down payment for a car.
The remaining amount is to be settled by paying Php
𝟏𝟔, 𝟐𝟎𝟎 at the end of each month for 𝟓 years. If interest is
𝟏𝟎. 𝟓% compounded monthly, what is the cash price of his
car?

Definition: The cash value or cash price is equal to the down

payment (if there is any) plus the present value of the
installment payments.
Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World
 Solution
Given:
Down payment = 200,000
𝑹 = 16,200
𝒓 = 10.5% = 0.105
𝒏 = 12
𝒕 = 5 𝑦𝑒𝑎𝑟𝑠
𝒎 = 𝑛𝑡 = 12 × 5 = 60
𝑟 0.105
𝒋= = = 0.00875
𝑛 12

Find: Cash value of the car

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Solution
1 − 1 + 𝑗 −𝑚
𝑃=𝑅
𝑗
−60
1 − 1 + 0.00875
𝑃 = 16,200
0.00875
𝑷 = 𝟕𝟓𝟑, 𝟕𝟎𝟐. 𝟐𝟎

𝐶𝑎𝑠ℎ 𝑣𝑎𝑙𝑢𝑒 = 𝐷𝑜𝑤𝑛 𝑃𝑎𝑦𝑚𝑒𝑛𝑡 + 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒

𝐶𝑎𝑠ℎ 𝑣𝑎𝑙𝑢𝑒 = 200,000 + 753,702.20
𝑪𝒂𝒔𝒉 𝒗𝒂𝒍𝒖𝒆 = 𝑷𝒉𝒑 𝟗𝟓𝟑, 𝟕𝟎𝟐. 𝟐𝟎

Hence, the cash price of the car is Php 𝟗𝟓𝟑, 𝟕𝟎𝟐. 𝟐𝟎.

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Example 5
• Paolo borrowed Php 𝟏𝟎𝟎, 𝟎𝟎𝟎 . He agrees to pay the
principal plus interest by paying an equal amount of money
each year for 𝟑 years. What should be his annual payment if
interest is 𝟖% compounded annually?

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Solution
𝑟 0.08
Given: 𝑃 = 100,000 𝑛=1 𝑗= = = 0.08
𝑛 1
𝑟 = 8% = 0.08 𝑡 = 3 𝑦𝑒𝑎𝑟𝑠 𝑚 = 𝑛𝑡 = 1 × 3 = 3

Find: Periodic payment 𝑅

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Solution
1− 1+𝑗 −𝑚 𝑃
Since 𝑃 = 𝑅 , then 𝑅 = 1− 1+𝑗 −𝑚
𝑗
𝑗

𝑃
𝑅= −𝑚
1− 1+𝑗
𝑗
100,000
𝑅=
1 − 1 + 0.08 −3
0.08
𝑹 = 𝟑𝟖, 𝟖𝟎𝟑, 𝟑𝟓

Hence, the Paolo should pay Php 𝟑𝟖, 𝟖𝟎𝟑. 𝟑𝟓 every year for 3 years.

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Try This!
1. How much should be invested in a fund each year paying 𝟐% compounded annually to
accumulate Php 𝟏𝟎𝟎, 𝟎𝟎𝟎 in 𝟓 years?
2. Peter started to deposit Php 𝟓𝟎𝟎𝟎 quarterly in a fund that pays 𝟏% compounded quarterly. How
much will be in the fund after 𝟔 years?
3. The buyer of a lot pays Php 𝟓𝟎, 𝟎𝟎𝟎 cash and Php 𝟏𝟎, 𝟎𝟎𝟎 every month for 10 years. If money is
𝟖% compounded monthly, how much is the cash value of the lot?
4. An appliance is for sale at either (a) Php 𝟏𝟓, 𝟗𝟗𝟗 cash or (b) on terms, Php 𝟏, 𝟒𝟗𝟗 each month for
the next 𝟏𝟐 months. Money is 𝟗% compounded monthly. Which is lower, the cash price or the
present value of the installment terms? Explain
5. A Php 𝟓𝟎, 𝟎𝟎𝟎 loan is payable in 𝟑 years. To repay the loan, the debtor must pay an amount
every 𝟔 months with an interest rate of 𝟔% compounded semi-annually. How much should he pay
every 𝟔 months?

Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World

 Thank you for Listening!
Prepared by: Roy I. Branzuela MMWORLD: Mathematics in the Modern World