ORDINARY ANNUITIES

REPORTERS: DANIEL GADDI

IVAN MIGUEL QUINONES
 ANNUITIES
A SERIES OF EQUAL PAYMENT OCCURING AT
EQUAL PERIOD OF TIME
TYPES OF ANNUITY

ORDINARY ANNUITY DEFFERED ANNUITY

1 2

ANNUITY DUE PERPETUITY

3 4
 ORDINARY ANNUITY

WHEN PAYMENT ARE MADE AT

THE END OF EACH PERIOD
 ORDINARY ANNUITY
FORMULA’S:
𝒏
TO FIND THE FUTURE VALUE OF (𝟏+ 𝒊) −𝟏
SIMPLE ORDINARY ANNUITY: 𝑭 =𝑹
𝒊
WHERE:
R = REGULAR OR PERIODIC
PAYMENT r
i = THE INTEREST RATE PER i 
PERIOD m
n = THE NUMBER OF PAYMENT

n mt
r = THE NOMINAL RATE
m = THE NUMBER OF
CONVERSION PERIODS
t = TIME
 ORDINARY ANNUITY
FORMULA’S:
−𝒏
TO FIND THE PRESENT VALUE OF 𝟏 −(𝟏+𝒊)
SIMPLE ORDINARY ANNUITY: 𝑷 =𝑹
𝒊
WHERE:
R = REGULAR OR PERIODIC
PAYMENT r
i = THE INTEREST RATE PER i 
PERIOD m
n = THE NUMBER OF PAYMENT

n mt
r = THE NOMINAL RATE
m = THE NUMBER OF
CONVERSION PERIODS
t = TIME
 ORDINARY ANNUITY
FORMULA’S:
TO FIND THE PPERIODIC PAYMENT 𝑭
𝒏
R OF AN ANNUITY: (𝟏+ 𝒊) − 𝟏
𝑹=
𝒊
WHERE:
R = REGULAR OR PERIODIC
PAYMENT r
i = THE INTEREST RATE PER i 
PERIOD m
n = THE NUMBER OF PAYMENT

n mt
r = THE NOMINAL RATE
m = THE NUMBER OF
CONVERSION PERIODS
t = TIME
 SAMPLE QUESTIONS

EXAMPLE 1: Suppose Mr. Y would like to save P3,000 every month in a fund that gives 9%
compounded monthly. How much is the amount or the future value of her building after 6
months

GIVEN: (𝟏+ 𝒊) −𝟏
𝒏
𝑭 =𝑹
R = P3,000 𝒊
𝟔
r = 9% (𝟏+𝟎 . 𝟎𝟎𝟕𝟓) −𝟏
t = 6 months 𝑭 =𝟑𝟎𝟎𝟎
𝟎 . 𝟎𝟎𝟕𝟓
m = 12
n = mt = 12(1/2) = 6 𝑭 =𝑷 𝟏𝟖 ,𝟑𝟒𝟎.𝟖𝟗
i = r/m = 9%/12 = 0.0075
 SAMPLE QUESTIONS

EXAMPLE 2: Engr. X works very hard because she wants to have enough money in her
retirement account when she reach the age 60. She wants to withdraw P36,000.00 Every 3
months for 20 years starting 3 months after she retires. How much must engr. Yuena deposit
at retirement at 12% per year compounded quarterly for the annuity?
GIVEN: 𝟏 −(𝟏+𝒊)
−𝒏
𝑷 =𝑹
R = P36,000 𝒊
−𝟖𝟎
r = 12% 𝟏−(𝟏+ 𝟎 .𝟎 𝟑)
t = 20 years 𝑷 =𝟑 𝟔 , 𝟎𝟎𝟎
𝟎.𝟎𝟑
m=4
n = mt = 20(4) = 80 𝑷 =𝑷 𝟏 , 𝟎𝟖𝟕 ,𝟐𝟐𝟕 .𝟒𝟖
i = r/m = 12%/4 = 0.03
 SAMPLE QUESTIONS

EXAMPLE 3: Mrs. Y borrowed P100 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?
𝑭
GIVEN: 𝟏 − (𝟏 + 𝒊 )
−𝒏

Down payment: n/a 𝑹=

𝒊
R = P100,000
r = 8% 𝟏𝟎𝟎 , 𝟎𝟎𝟎
−𝟑
t = 3 years 𝟏 − (𝟏 + 𝟎 . 𝟎𝟖)
m=1 𝑹=
𝟎 . 𝟎𝟖
n = mt = 1(3) = 3
i = r/m = 8%/1 = 0.08
𝑹=𝑷 𝟑𝟖 ,𝟖𝟎𝟑 .𝟑𝟓
 ANNUITY DUE

WHEN THE PAYMENT ARE MADE AT THE

BEGINNING OF EACH PERIOD
 ANNUITY DUE
FORMULA’S:
𝒏
(𝟏+ 𝒋 ) − 𝟏
𝑭𝑽 = 𝑹 (𝟏+ 𝒋 )
FV = Future Value
𝒋
R = regular payment of the present
value
j = interest rate per period
𝒊
𝒋 =
i = interest rate
𝒎
m = Conversion Period
 ANNUITY DUE
FORMULA’S:
−𝒏
𝟏 − (𝟏+ 𝒋 )
𝑷𝑽 = 𝑹 (𝟏+ 𝒋 )
PV = Present Value
𝒋
R = regular payment of the present
value
j = interest rate per period
𝒊
𝒋 =
i = interest rate
𝒎
m = Conversion Period
 SAMPLE QUESTIONS

EXAMPLE 1: Find the future value at the end of the payment period. Payments of Php 2,000
each are made at the beginning of each year for 4 years with interest at 5% compounded
annually.

GIVEN: (𝟏+ 𝒋 )𝒏 − 𝟏
𝑭𝑽 = 𝑹 (𝟏+ 𝒋 )
F=?
𝒋
R = P,2000 ( 𝟏+𝟎 . 𝟎𝟓) − 𝟏
𝟒
i = 5% 𝑭𝑽 =𝟐𝟎𝟎𝟎 (𝟏+𝟎 . 𝟎𝟓)
j = i/m = 0.05/1 = 0.05 𝟎 . 𝟎𝟓
m = 1 (annually) 𝑭𝑽 =𝟗 , 𝟎𝟓𝟏 . 𝟐𝟔
n = mt = 1(4) = 4
 SAMPLE QUESTIONS

EXAMPLE 2: Mr. X wants to have 800,000 in an annuity by the time she retires 30 years from
now. If the annuity pays a fixed annual of interest of 5% at the beginning of each period. How
much should she deposit each month into his account for the next 30 years?

GIVEN: (𝟏+ 𝒋 )𝒏 − 𝟏
𝑭𝑽 = 𝑹 (𝟏+ 𝒋 )
F = 800,000
𝒋
R=? (𝟏+𝟎 . 𝟎𝟓) −𝟏
𝟒
i = 5% 𝟖𝟎𝟎 ,𝟎𝟎𝟎= 𝑹 (𝟏+𝟎 . 𝟎𝟓)
j = i/m = 0.05/1 = 0.05 𝟎 . 𝟎𝟓
m = 1 (annually) 𝟖𝟎𝟎 ,𝟎𝟎𝟎= 𝑹(𝟔𝟗 . 𝟕𝟔𝟎𝟕𝟖𝟗𝟖𝟖)
t = 30 years 𝟖𝟎𝟎 ,𝟎𝟎𝟎
n = mt = 1(30) = 30 𝑹= =𝟏𝟏 ,𝟒𝟔𝟕 .𝟕𝟔(𝒂𝒏𝒏𝒖𝒂𝒍)
𝟔𝟗.𝟕𝟔𝟎𝟕𝟖𝟗𝟖𝟖
 SAMPLE QUESTIONS

EXAMPLE 3: Mrs. X wants to know how much he should invest today tp receive $1,500 at the
beginning of each period for 5 years. The annual interest rate is 6% compounding annually for
5 years.

GIVEN: 𝟏 − (𝟏+ 𝒋 )−𝒏

𝑷𝑽 = 𝑹 (𝟏+ 𝒋 )
P=
𝒋
R = 1500 𝟏−(𝟏+ 𝟎 .𝟎 𝟔)
−𝟓
i = 6% 𝑷𝑽 =𝟏𝟓𝟎𝟎 (𝟏+𝟎 . 𝟎 𝟔)
j = i/m = 0.06/1 = 0.06 𝟎.𝟎𝟔
m = 1 (annually) 𝑷𝑽 = $ 𝟔 , 𝟔𝟗𝟕 . 𝟓𝟔
t = 5 years
n = mt = 1(5) = 5
THANK YOU