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Annuity Due

The document discusses annuity due, where periodic payments are made at the beginning of each payment interval. It provides formulas for calculating the future value (F) and present value (P) of an annuity due, given the payment amount (A). Several examples show how to use the formulas to solve problems involving annuity due payments over time at a compound interest rate.

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Benedict
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127 views18 pages

Annuity Due

The document discusses annuity due, where periodic payments are made at the beginning of each payment interval. It provides formulas for calculating the future value (F) and present value (P) of an annuity due, given the payment amount (A). Several examples show how to use the formulas to solve problems involving annuity due payments over time at a compound interest rate.

Uploaded by

Benedict
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Lesson 5 - Annuity Due

Engr. Brylle Reovince Rosales


MITL
Annuity Due ()
• Annuity in which periodic payment () is made at the beginning
of each payment interval
• The term of an A-due covers the time from beginning of the
first payment period up to the one end of the last payment
period.
• The present value of A-due or is the value on the day of the
first payment
• Ordinary annuity of
• The amount of A-due or the value at the end of the term, is the
sum of the accumulated value of the payments at the end of the
term.
• Ordinary annuity of
Finding F when given A

F
A

0 1 2 3 4 5 n-1 n

 (1  i ) n 1  1 
F  A  1
 i 
Finding P when given A
P

0 1 2 3 4 5 n-1 n

1  (1  i )  n 1 
P  A  1
 i 
Example 4.7 (Sullivan, 2006)

Eight annual deposits of $1,500 were made at the


beginning of each year in an account that pays 10%
compound interest.
a.What will be the accumulated amount at the end of eight
years?
b.What is the present worth of the deposits?
SOLUTION
P $1,500 F
a)

b) 0 1 2 3 4 5 6 7 8
P
ALTERNATIVE SOLUTION

a) Solve for F7 then solve for F8. P $1,500 F7 F8

0 1 2 3 4 5 6 7 8
ALTERNATIVE SOLUTION

b) Use F8 to solve for P0. P0 $1,500 F7 F8

0 1 2 3 4 5 6 7 8
Example 4.8 (Sullivan, 2006)
Sarah wants to have $10,000 on her
account at the end of 5 years. If she plans
to place it on a bank having an interest rate
of 5% compounded annually and make
deposits at the beginning of each year,
what should be her annual deposits?
Heart wants to buy a computer set
within a year. She decides to make
regular deposits of P3,000 at the
start of every month, her money
earning 5% compounded monthly.
How much will she have in her
savings a year after?
How much should be invested in a
fund at the beginning of each year
in order to accumulate P80,000 at
the end of 10 years if the fund is
invested at 5% converted annually?
Find the cash equivalent of an
item that was purchased for
P18,000 down payment and
P2,500 at the beginning of each
six months for 3½ years, if
interest is 5½ % compounded
semi-annually.
Nette bought a brand new car.
What is the cash price of the car if
she has to make 36 quarterly
payments of P22,000 at the
beginning of each quarterly period
at 10.5% compounded quarterly?
Assignment 4
1. Tonio wants to have P95,000 for his traveling expenses
four years from now. How much must he save at the
beginning of each quarter starting now, if he gets 6%
compounded quarterly interest on his savings?

2. How much should Analyn deposit at the beginning of


every three months if the bank pays 12% compounded
quarterly to have a total amount of P416,085 after
three years?

Due date: 1/16/2023 1:00PM


How much should Analyn deposit at
the beginning of every three months
if the bank pays 12% compounded
quarterly to have a total amount of
P416, 085 after three years?
The annual premium on a life
insurance policy is P88,000 payable
in advance. What would be the
monthly premium, if the interest
rate is based on 9% compounded
monthly?
In purchasing a high quality handy
camera, the buyer agreed to pay
P9,375 at the beginning of each 6
months for 8 years, with the first
payment due on the date of
purchase. If the interest rate is
19.5% converted semiannually, find
the cash price of the camera.
Seat Work:
1.) A loan of P500,000 was signed by Liza
who promised to pay it at the
beginning of each month for 5 years. If
money is worth 12% compounded
monthly, what will be the total sum
paid by Liza?

2.) How much should Robert pay at the


beginning of every six months at 10%
compounded semi – annually to
accumulate P298, 085 for 8 years?

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