Simple
Annuities
What is
Annuity?
Annuity - a sequence of payments
made at equal (fixed intervals or
periods of time). The following are
examples of annuities:
Rental payment
Monthly pensions
Monthly payment for car loan
Educational plan
Annuities may be classified in different
Annuities
According to payment Simple Annuity - an General Annuity - an
interval and interest annuity where the annuity where the
period payment intervals is the payment intervals is not
ways, as follows
same as the interest
period
the same as the interest
period
According to time of Ordinary Annuity (or Annuity due – A type of
payment Annuity Immediate) - a annuity in which the
type of annuity in which payments are made at
the payments are made at beginning of each
the end of each payment payment interval
interval
According to duration Annuity Certain - an Contingent Annuity an
annuity in which annuity in which the
payments begin and end payments extend over
at definite times an indefinite (or
indeterminate) length of
time
FORMULA
LETS IDENTIFY!
Where in the following situations is a SIMPLE
ANNUITY, GENERAL ANNUITY, ORDINARY ANNUITY,
ANNUITY DUE?
a) Payments are made at the end of each month
for a loan that charges 1.05% interest
compounded quarterly.
b) A deposit of P5, 500.00 was made at the end of
every three months to an account that earns
5.6% interest compounded quarterly.
LETS IDENTIFY!
Where in the following situations is a SIMPLE ANNUITY,
GENERAL ANNUITY, ORDINARY ANNUITY, ANNUITY
DUE?
a) Jun s monthly mortgage payment is P35,
148.05 at the end of each month.
b) The rent of apartment is P7,000.00P and
due at the beginning of each month.
The payment is made at the end of each period.
Such annuity is called an ordinary annuity.
Each payment in an annuity is called the periodic
payment (R).
The time between the successive payments dates
of an annuity is called the payment interval.
The time between the first payment interval and
last payment interval is called term of the
annuity (t).
The sum of the future values of all the
payments to be made during the entire
term of the annuity is the future value
or the amount of an annuity (F).
The sum of the present values of all
payments to be made during the entire
term of the annuity is called the present
value of n annuity (P).
Annuities may be illustrated using a time
diagram. The time diagram for an ordinary
annuity is given below.
Time Diagram for an n-Payment Ordinary
Annuity
R R R R R… R
0 1 2 3 4 5 n
ITS SOLVING
TIME!!!
Example 1
Suppose Ms. Remoto would like to save P3,000 every month
in a fund that gives 9% compounded monthly. How much is
the amount or future value of her savings after 6 months?
Given:
periodic payment R = P3,000
term t = 6 months
interest rate per annum i¹² = 0.09
number of conversion per year m = 12
interest rate per period j = 0.09/12 = 0.0075
Find: amount (future value) at the end of the term F
Process
Process
Example 2
In order to save for her high school
graduation, Marie decided to save P200 at the
end of each month. If the bank pays 0.250%
compounded monthly, how much will her money
be at the end of 6 years?
Given:
R = 200
n = 12
i¹² = 0.250% = 0.0025
j = 0.0025/12 = 0.0002083
t = 6 years
Process
Thank
you
Beyonce!
