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Deferred Annuity
Is an annuity whose term does not begin until the expiration of a specified time.
This means that the first payment is not made on the first interest but on the later period.
To say that an annuity is deferred for a certain time means that the term of an annuity
commences at the end of this time.
Period of Deferment
A –actual value
R – periodic payment
𝒓
i – interest rate
𝒎
t – number of years
S – Imaginary Value
Formulas To be Use
a. To obtain the present value of all payments, imaginary and actual, minus the
present value of the imaginary payments :
A=R [ ( 1 + i)−(𝒉+𝒏)
i ] [ –R
1 - (1 + I )−𝒉
i ]
Example:
If money is worth 5% compounded semi- annually, find the present value of a sequence of
12 semi - annual payments of Php 500 each, the first of which is due at the end of 4 ¼
years.
R= 500 r= 5%
m= 2 n= 12
Step 2. Compute the present value A using the formula andcompare your answer if this was it,
4, 209.51
b. To obtain the amount of annuity where the first is deferred, the formula is:
S=R [ ( 1 + i)(𝒉+𝒏) − 𝟏
i ] [ –R
-1
1- (1+i )𝒉 − 𝟏
i ]
c. To solve for the the periodic payment R of a deferred annuity, we may substitute
the given to the above stated formula or to the derived formulas as follows:
𝑨𝒊 𝑺𝒊
𝑹= 𝑹=
(𝟏+𝒊)−𝒉 −(𝟏+𝒊)−(𝒉+𝒏) (𝟏+𝒊)𝒉+𝒏 − (𝟏+𝒊)𝒉+
Example:
To settle a debt of Php 30 000, Mr. San Juan will pay quarterly for 6 years at 12%
compounded quarterly. If the first payment is due at the end of 1 year, How much is his
quarterly payment ?
A = 30 000 i = 0.03 n= 24
t = 6 years r = 12%
h=3 m=4
Step 2. Compute the periodic payment R using the given formula and compare if we have the
same solution which is 1 935.90
Try to solve :
Find the present value and the amount of 10 semi – annual payments of Php 750 each
if the first payment is done at 3 years and money is worth 10% compounded semi –
annually
Step 2. Since you are tasked to find the present value A and the amount of 10 semi
annual payments, try to solve for A first
A = 3 247.11
S= 12 039.70