ANNUITIES

Notes for Annuity  Present Value (4) Paolo borrowed P100, 000. He agrees to pay
the principal plus interest by paying an equal amount
1−(1+𝑗)−𝑛
𝑃=𝑅 of money each year for 3 years. What should be his
𝑗
(1) Suppose Mr. Gran wants to purchase a annual payment if the interest is 8% compounded
Where R is the regular payment annually?
cellular phone. He decided to pay monthly for 1 year
j is the interest rate per period
starting at the end of the month. How much is the
n is the number of payments ANSWER: P38, 803.35
cost of the cellular phone if his monthly payment is
P2500 and interest is at 9% compounded monthly? Formula for R in Ordinary Annuity
(1) In order to save for her high school  Given that we have Future Value,
Answer: P=28, 587.28 graduation, Maria decided to save P200 at the end of 𝐹𝑗
each month. If the bank pays 0.25% compounded 𝑅=
(2) Suppose Mr. Gran wants to purchase a (1 + 𝑗)𝑛 − 1
monthly, how much will her money be at the end of
cellular phone. He decided to pay monthly for 1 year
starting at the beginning of the month. How much is
6 years?  Given that we have Present Value
ANSWER: P14, 507.02 𝑃𝑗
the cost of the cellular phone if his monthly payment 𝑅=
1 − (1 + 𝑗)−𝑛
is P2500 and interest is at 9% compounded monthly?
(2) Suppose Mrs. Remoto would like to know the (5) A high student would like to save P50, 000 for
Answer: P20, 788.56 present value of her monthly deposit of P3, 000 when his graduation. How much should he deposit in
interest 9% compounded monthly. How much is the savings account every month for 5.5 years if interest
(3) Suppose Mr. Gran wants to purchase a
present value of her savings at the end of 6 months?
cellular phone. He decided to pay monthly for 1 year is at 0.25% compounded monthly?
ANSWER: P17, 536.79
starting at the 4th month to the end of the 15th month.
P752.46
How much is the cost of the cellular phone if his
monthly payment is P2500 and interest is at 9% (3) Mr. Ribaya paid P 200,000 as down payment Formula for Annuity Due
compounded monthly? of for a car. The remaining amount is to be settled by
paying P 16, 200 at the end of each month for 5 years. Present Value
Answer: P=27, 953.60 If interest is 10.5% compounded monthly, what is the
1 − (1 + 𝑗)−(𝑛−1)
cash price of his car. 𝑃̅ = 𝑅 (1 + )
Formula for Ordinary Annuity 𝑗
ANSWER: P953, 702.20
 Future Value
Future Value
(1+𝑗)𝑛 −1
𝐹=𝑅 DEFINITION (1 + 𝑗)𝑛+1 − 1
𝑗 𝐹̅ = 𝑅 ( − 1)
The cash value or cash price is equal to the down 𝑗
payment plus the value of the installment payments.

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 ANNUITIES

(1) For a house and lot, a man made cash down (4) Mrs. Cha Knock deposits at the beginning of SEATWORK!!
payment for 2 years ago, and agreed to pay 3, 500 each quarter to accumulate 100, 000 at the end of 15
Determine the kind of annuity used in each problem
monthly for 10 years starting now. Find the present years. How much is his quarterly at 5% compounded
then solve.
value of his monthly payments now if money is quarterly?
worth 9% compounded monthly. 1. Deku is looking for an apartment near his
Answer: 𝑅 = 1, 115.05
school. An apartment with a monthly rent of P18, 000
Answer: 𝑃̅ = 278,368.14
Formula for Present Value of Deferred Annuity is payable at the beginning of each month. If money
(2) If 3000 is deposited at every beginning of is worth 15% compounded monthly. What is the cash
1 − (1 + 𝑗)−𝑛
each 6 months for 10 years at 7% compounded semi- 𝑃∗ = 𝑅 equivalent of 3 years rent?
𝑗(1 + 𝑗)𝑘
annually, how much is in the fund (a) at the end of 6
2. Peter started to deposit P 5, 000 quarterly at
½ years after the payment; (b) at the end of 10 years? (1) Emma availed of a cash loan that gave her an
the end of each term in a fund that pays 1%
option to pay P10, 000 monthly for 1 year. The first
Answer: (a) 𝐹̅ = 50, 030.96(b) 𝐹̅ = 87,808.41 compounded quarterly. How much will be the fund
payment is due after 6 months. How much is the
after 6 years?
Formula for R in Annuity Due present value of the loan if the interest rate is 12%
converted monthly? 3. To create a fund worth 500, 000 at the end of
 Given that we have Future Value, 5 years, 15 members of a cooperative association
Answer: P=107, 088.20
𝐹̅ contributed an equal amount every beginning of the
𝑅= Formula for R in Deferred Annuity month. How much will each member contribute if
(1 + 𝑗)𝑛+1 − 1
( − 1) money is worth 9%?
𝑗
𝑃∗ 𝑗(1 + 𝑗)𝑘
𝑅=
 Given that we have Present Value, 1 − (1 + 𝑗)−𝑛 4. Mr. and Mrs. Mercado decided to sell their
house to deposit the fund in a bank. After computing
𝑃̅ (2) A house costs P 1,300,000 cash. A buyer the interest, they found out that they may withdraw
𝑅=
1 − (1 + 𝑗)−(𝑛−1) bought it by paying P 300, 000 down payment P350,000 yearly for 4 years starting at the end of 7
(1 + )
𝑗 and would pay 48 monthly installments, the years when their will be in college. How is the fund
first of which is due at the end of one year. If deposited if the interest rate is 3% converted
(3) To discharge a debt amounting to 80, 000
the rate of interest is 20.4% compounded annually?
pesos, Mr. S.A. Mal agreed to make equal monthly
monthly, what is the monthly installments?
deposit at the beginning of the month for 5 years.
5. The buyer of a lot pays P 50, 000 cash and
How much should he deposit monthly if the money is Answer: P 36,887.08 P10, 000 every month for 10 years. If money is 8%
worth 4%compounded monthly?
compounded monthly, how much is the cash value of
Answer: 𝑅 = 1, 468.43 the lot?

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