Lesson 6
Lesson 6
ILLUSTRATIVE EXAMPLE
Consider an ordinary annuity of P1000 per year payable for 5 years with money worth
12%, To find the amount S of the annuity, accumulate the payment of each period to the end of 5
years, then add the accumulations.
To find the present value of an annuity, discount each payment, then add the results.
Ordinary Annuity Formulas
To derive the amount S of an ordinary annuity of R, payable in n period, let i be the rate
per period, accumulate all payments.
Periodic Payment of an Ordinary Annuity
Another example,
ACTIVITY NO. 6
1. Maria bought a sala set. She paid P3,600 as down payment and promised to pay P500 at
the end of each 3 months for 2 years. What is the cash equivalent of the sala set if the
interest rate is 12% compounded quarterly?
2. Find the amount and present value of an annuity of P2, 870 payable every end of 3 months
for 6 years and 6 months, if money is worth 6% compounded quarterly.
3. How much should be invested each year in a fund paying 12% effective to accumulate P25,
900 in 6 years?