Scenario 1:

Suppose Ramon, a senior high school student, would like to

save ₱5,000 in a fund that gives 10% compounded annually.
How much is the amount or future value of his savings after 4
years?

Scenario 2:
Suppose Ramon, a senior high school student, would like to
save ₱5,000 annually in a fund that gives 10% compounded
annually. How much is the amount or future value of his
savings after 4 years?
ANNUITY
▪ a sequence of equal payments (or deposits) made at a
regular interval of time.
▪ Examples: regular deposits to a savings account, monthly
home mortgage payments, monthly insurance payments
and pension payments
According to payment interval and interest period:
SIMPLE ANNUITY
▪ an annuity where the payment interval is the same
as the interest period
▪ Example: A deposit of ₱5,500 was made at the end
of every three months to an account that earns
5.6% interest compounded quarterly.
According to payment interval and interest period:
GENERAL ANNUITY
▪ an annuity where the payment interval is the not the
same as the interest period
▪ Example: Payments are made at the end of each
month for a loan that charges 1.05% interest
compounded quarterly.
Joseph is renting a condominium. He is paying ₱5,000
per month compounded monthly at 5% interest.
Simple Annuity

Mr. Manaloto is paying ₱17,500 monthly for 20 years

compounded semi-annually at a rate of 5%.
General Annuity
The buyer of a lot paid ₱20,000 down payment and
agreed to pay ₱15,000 at the end of each 6 months at
8% compounded semi-annually.
Simple Annuity

Mrs. Mateo bought a car to be paid ₱20,000 every 2

months. The car loan has an 8% interest compounded
quarterly.
General Annuity
According to time of payment:
ORDINARY ANNUITY
▪ a type of annuity in which the payments are made at
the end of each payment interval
▪ Example: Salaries, wages, stocks and bond
dividends
According to time of payment:
ANNUITY DUE
▪ a type of annuity in which the payments are made at
the beginning of each payment interval
▪ Example: House rental
Jun’s monthly mortgage payment is ₱35,108 at the end
of each month.
Ordinary Annuity

The rent for the apartment is ₱7,000 and due at the

beginning of each month.
Annuity Due
According to duration:
ANNUITY CERTAIN
▪ an annuity in which payments begin and end at
definite times.
▪ Example: Monthly payment of car loan
According to duration:
ANNUITY UNCERTAIN
▪ annuity payable for an indefinite duration
▪ dependent on some events
▪ Example: Life and accident insurance
AMOUNT/FUTURE VALUE OF AN ANNUITY (F)
▪ The sum of future value of all the payments to be made
during the entire term of the annuity.
▪ It tells you how much money you will have in the future if
you make regular payments and earn interest on those
payments.
PRESENT VALUE OF AN ANNUITY (P)
▪ The sum of present value of all the payments to be made
during the entire term of the annuity.
▪ It tells how much a series of future cash flows is worth in
today’s peso.
▪ It is the amount of money that would need to be invested
today to generate a specific income down the road.
TERM OF AN ANNUITY (t)
▪ The time between the first payment interval and the last
payment interval.

REGULAR OR PERIODIC PAYMENT (R)

▪ The amount of each payment.
Find the amount of annuity if ₱50,000.00 deposited every year
for 5 years at 8% compounded annually. Simple Annuity
Payment ₱50,000 ₱50,000 ₱50,000 ₱50,000 ₱50,000

Period 0 1 2 3 4 5
₱50,000
₱54,000
₱58,320
₱62,985.60
₱68,024.45
Total: ₱293,330.05
 𝒏
𝟏+𝒊 −𝟏
𝑭=𝑹
𝒊
𝑹 = regular payment 𝐫 = interest rate
𝑟 𝐦 = conversion period
𝒊 = periodic rate 𝐭 = time
𝑚
𝐧 = total no. of conversion periods 𝑚 × 𝑡
𝒓 𝒎𝒕
𝟏+ −𝟏
𝑭=𝑹 𝒎
𝒓
𝒎
Find the amount of annuity if ₱50,000.00 deposited every year
for 5 years at 8% per year compounded annually.
Given: Solution:
𝑅 = ₱50,000 5
1 + 0.08 − 1
𝑟 = 8% 𝐹 = 50,000
0.08
𝑡 = 5 𝑦𝑒𝑎𝑟𝑠
𝑚=1 𝑭 = ₱𝟐𝟗𝟑, 𝟑𝟑𝟎. 𝟎𝟓
0.08
𝑖= = 0.08
1 Answer: The amount of annuity
𝑛 =1×5=5
is ₱293,330.05
Required: 𝐹 = ?
1+𝑖 𝑛 −1
Equation: 𝐹 = 𝑅
𝑖
Mendel is an athlete who believes that his playing career will last 7 years. He
deposits ₱22,000 at the end of each year for 7 years in an account paying 6%
compounded annually. How much will he have on deposit after 7 years?
Given: Solution:
𝑅 = ₱22,000 1 + 0.06 − 1 7
𝑟 = 6% 𝐹 = 22,000
0.06
𝑡 = 7 𝑦𝑒𝑎𝑟𝑠
𝑚=1 𝑭 = ₱𝟏𝟖𝟒, 𝟔𝟔𝟒. 𝟒𝟑
0.06
𝑖= = 0.06
1 Answer: Mendel will have
𝑛 =1×7=7
₱𝟏𝟖𝟒, 𝟔𝟔𝟒. 𝟒𝟑 after 7
Required: 𝐹 = ? years.
1+𝑖 𝑛 −1
Equation: 𝐹 = 𝑅
𝑖
Julian has decided to deposit ₱500 at the end of each month in
an account that pays interest of 4.8% compounded monthly
for retirement in 20 years. How much will be in the account at
that time?
 𝒏
𝟏+𝒊 −𝟏
𝑭=𝑹 (𝟏 + 𝒊)
𝒊
𝑹 = regular payment
𝑟
𝒊 = periodic rate
𝑚
𝐧 = total no. of conversion periods 𝑚 × 𝑡
𝐫 = interest rate
𝐦 = conversion period
𝐭 = time
Find the future value at the end of the last payment period if the payment of
₱1,000 each are made at the beginning of each year for 3 years at 5%
compounded annually.
Given: Solution:
𝑅 = ₱1,000 1 + 0.05 − 1 3
𝑟 = 5% 𝐹 = 1,000 (1 + 0.05)
0.05
𝑡 = 3 𝑦𝑒𝑎𝑟𝑠
𝑚=1 𝑭 = ₱𝟑, 𝟑𝟏𝟎. 𝟏𝟑
0.05
𝑖= = 0.05
1 Answer: The future value at the
𝑛 =1×3=3 end of the last payment
Required: 𝐹 = ? period is ₱3,310.13.
1+𝑖 𝑛 −1
Equation: 𝐹 = 𝑅 (1 + 𝑖)
𝑖
Mr. Dela Cruz has been investing ₱5,000.00 at the beginning of each quarter in
a savings account for the past 5 years. If the bank is paying 8% compounded
quarterly, how much is the balance in his savings account?
Given: Solution:
𝑅 = ₱5,000 1 + 0.02 20 −1
𝑟 = 8% 𝐹 = 5,000 (1 + 0.02)
0.02
𝑡 = 5 𝑦𝑒𝑎𝑟𝑠
𝑚=4 𝑭 = ₱𝟏𝟐𝟑, 𝟗𝟏𝟔. 𝟓𝟗
0.08
𝑖= = 0.02
4 Answer: The balance in Mr. Dela
𝑛 = 4 × 5 = 20 Cruz’ savings account is
Required: 𝐹 = ? ₱123,916.59.
1+𝑖 𝑛 −1
Equation: 𝐹 = 𝑅 (1 + 𝑖)
𝑖
At the beginning of each month, Danilo deposits ₱1,100 in a
bank at 6% compounded monthly. How much will he have in 2
years?
 −𝒏
𝟏− 𝟏+𝒊
𝑷=𝑹
𝒊
𝑹 = regular payment
𝑟
𝒊 = periodic rate
𝑚
𝐧 = total no. of conversion periods 𝑚 × 𝑡
𝐫 = interest rate
𝐦 = conversion period
𝐭 = time
Find the present value of an annuity whose periodic payment of ₱15,000.00 is
payable at the end of each 6 months for 10 years at 8% compounded semi-
annually.
Given: Solution:
𝑅 = ₱15,000 1 − 1 + 0.04 −20
𝑟 = 8% 𝑃 = 15,000
0.04
𝑡 = 10 𝑦𝑒𝑎𝑟𝑠
𝑚=2 𝑷 = ₱𝟐𝟎𝟑, 𝟖𝟓𝟒. 𝟗𝟎
0.08
𝑖= = 0.04
2 Answer: The present value of the
𝑛 = 2 × 10 = 20 annuity is ₱203,854.90
Required: 𝑃 = ?
1− 1+𝑖 −𝑛
Equation: 𝑃 = 𝑅
𝑖
Mr. Angeles paid ₱200,000.00 as a downpayment for a car. The remaining amount is
to be settled by paying ₱ 16,200.00 by the end of each month for 5 years. If interest
is 10.5% compounded monthly, what is the cash price of his car?
Given: Solution:
𝐷𝑜𝑤𝑛𝑝𝑎𝑦𝑚𝑒𝑛𝑡 = ₱200,000 −60
1 − 1 + 0.00875
𝑅 = ₱16,200 𝑃 = 16,200
𝑟 = 10.5% 0.00875
𝑡 = 5 𝑦𝑒𝑎𝑟𝑠
𝑷 = ₱𝟕𝟓𝟑, 𝟕𝟎𝟐. 𝟐𝟎
𝑚 = 12
0.105 𝐶𝑎𝑠ℎ 𝑝𝑟𝑖𝑐𝑒 = 𝐷𝑜𝑤𝑛𝑝𝑎𝑦𝑚𝑒𝑛𝑡 + 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒
𝑖= = 0.00875 𝐶𝑎𝑠ℎ 𝑝𝑟𝑖𝑐𝑒 = 200,000 + 753,702.20
12
𝑛 = 12 × 5 = 60 𝑪𝒂𝒔𝒉 𝒑𝒓𝒊𝒄𝒆 = ₱𝟗𝟓𝟑, 𝟕𝟎𝟐. 𝟐𝟎
Required: 𝑃 = ? Answer: The cash price of Mr.
1− 1+𝑖 −𝑛
Equation: 𝑃 = 𝑅 Angeles’ car is ₱953,702.20.
𝑖
Mr. Romero wants to deposit a sum of money today that will
give an ordinary annuity paying ₱12,000.00 quarterly for the
next 6 years. If the interest is 8.8% compounded quarterly and
the withdrawals will be done at the end of each quarter, find
the present value of the ordinary annuity.
 −𝒏
𝟏− 𝟏+𝒊
𝑷=𝑹 (𝟏 + 𝒊)
𝒊
𝑹 = regular payment
𝑟
𝒊 = periodic rate
𝑚
𝐧 = total no. of conversion periods 𝑚 × 𝑡
𝐫 = interest rate
𝐦 = conversion period
𝐭 = time
Find the present value of an annuity whose periodic payment of ₱5,400.00 is
payable at the start of each 6 months for 8 years at 8.5% compounded semi-
annually.
Given: Solution:
𝑅 = ₱5,400 1 − 1 + 0.0425 −16
𝑟 = 8.5% 𝑃 = 5,400 (1 + 0.0425)
0.0425
𝑡 = 8 𝑦𝑒𝑎𝑟𝑠
𝑚=2 𝑷 = ₱𝟔𝟒, 𝟒𝟎𝟑. 𝟐𝟐
0.085
𝑖= = 0.0425
2 Answer: The present value of the
𝑛 = 2 × 8 = 16 annuity is ₱64,403.22
Required: 𝑃 = ?
1− 1+𝑖 −𝑛
Equation: 𝑃 = 𝑅 (1 + 𝑖)
𝑖
Shelly bought a LED television set. She must pay ₱3,000 at the beginning of
each month for 1 year. If interest charged at 12% compounded monthly, what is
the cash price of the unit?
Given: Solution:
𝑅 = ₱3,000 1 − 1 + 0.01 −12
𝑟 = 12% 𝑃 = 3,000 (1 + 0.01)
0.01
𝑡 = 1 𝑦𝑒𝑎𝑟
𝑚 = 12 𝑷 = ₱𝟑𝟒, 𝟏𝟎𝟐. 𝟖𝟖
0.12 𝐶𝑎𝑠ℎ 𝑝𝑟𝑖𝑐𝑒 = 𝐷𝑜𝑤𝑛𝑝𝑎𝑦𝑚𝑒𝑛𝑡 + 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒
𝑖= = 0.01
12 𝐶𝑎𝑠ℎ 𝑝𝑟𝑖𝑐𝑒 = 0 + 34,102.88
𝑛 = 12 × 1 = 12 𝑪𝒂𝒔𝒉 𝒑𝒓𝒊𝒄𝒆 = ₱𝟑𝟒, 𝟏𝟎𝟐. 𝟖𝟖
Required: 𝑃 = ? Answer: The cash price of the TV
1− 1+𝑖 −𝑛 unit is ₱34,102.88
Equation: 𝑃 = 𝑅 (1 + 𝑖)
𝑖
A 48-month lease agreement requires payments of ₱10,000 at
the beginning of every month. If the interest rate is 9%
compounded monthly, what is the cash value of the lease?