Chapter 3:

Simple Annuities
Presented by:
Ms. Mikee Sim
 Present Value of Annuity Due ()
A R R 1 (1 i ) ( n 1)
1 (1 i ) ( n 1)

A R 1
i i
A R i 1 (1 i ) ( n 1)
(1 i ) (1 i ) ( n 1)

A R
i i
A R 1 (1 i ) n

(1 i )
i
1 (1 i ) n
R A
i
A A(1 i )
 Example 3.10
Mary Frances agrees to pay P2,000 at the beginning of
every 3 months for 6 years and 6 months for an investment
paying 9% compounded quarterly. Find (a) the equivalent
cash price of the investment, (b) the investors remaining
Given: R =just
liability P2,000;
after jher
= 0.09;
10th tpayment
= 6.5; m =is4;made
n = 26;
andi =(c)
0.0225
her
remaining
Required: (a)liability
just before
(b) RL 10 the 20th payment.
(c) 20RL
Solution: (a)
A(1 i )
A

A 2000 1 (1 . 0225) 26

(1.0225)
0.0225
A P39,942.77
 Example 3.10
Mary Frances agrees to pay P2,000 at the beginning of
every 3 months for 6 years and 6 months for an investment
paying 9% compounded quarterly. Find (a) the equivalent
cash price of the investment, (b) the investors remaining
Given: R =just
liability P2,000;
after jher
= 0.09;
10th tpayment
= 6.5; m =is4;made
n = 26;
andi =(c)
0.0225
her
remaining
Required: (a)liability
just before
(b) RL 10 the 20th payment.
(c) 20RL
Solution: (b)
1 (1 i ) ( n k )
RLk R
i
1 (1.0225) ( 2610 )
RL10 2000
0.0225
RL10 P 26,625.26
 Example 3.10
Mary Frances agrees to pay P2,000 at the beginning of
every 3 months for 6 years and 6 months for an investment
paying 9% compounded quarterly. Find (a) the equivalent
cash price of the investment, (b) the investors remaining
Given: R =just
liability P2,000;
after jher
= 0.09;
10th tpayment
= 6.5; m =is4;made
n = 26;
andi =(c)
0.0225
her
remaining
Required: (a)liability
just before
(b) RL 10 the 20th payment.
(c) 20RL
Solution: (c)
20 RL R RL 20
1 (1.0225) ( 26 20 )
20 RL 2000 2000
0 . 0225
20 RL P13,108.95
 )
Amount of an Annuity Due ( S

S R (1 i ) ( n 1)
1 (1 i ) ( n 1)
1
R S R 1
i i
S R (1 i ) ( n 1)
1 i (1 i ) ( n 1)
(1 i )
R S R
i i
S R (1 i ) n
1
(1 i )
i
S S (1 i )
Relationship between and
S

A S(1 i ) n

S A
(1 i ) n
 Example 3.11
Find the amount of an annuity due of P15,500 payable at
the beginning of every 6 months for 7 years, if money is
worth 11% compounded semi-annually.

Given: R = P15,500; j = 0.11; t = 7; m = 2; n = 14; i = 0.055

Required:
S
Solution:
S S (1 i )

S 15500 (1 . 055)14
1
(1.055)
0.055
S P331,834.28
 Example 3.12
For 5 years, P100,000 will be deposited in a fund at the
beginning of every 6 months. If money is worth 10.5%
compounded semi-annually, how much is in the fund (a) at
the end of 4 years just after the last deposit is made, (b)
Given:
at theRend
= P100,000; j = 0.105;
of 5 years? t = 5;
(c) What ismthe
= 2; n = 10;value
present i = 0.0525
of the
fund? (a) S10
Required: (b) S (c)
Solution: (a)
(1 i ) k 1
Sk R
i
(1.0525)10 1
S10 100000
0 . 0525
S10 P1,272,563.84
 Example 3.12
For 5 years, P100,000 will be deposited in a fund at the
beginning of every 6 months. If money is worth 10.5%
compounded semi-annually, how much is in the fund (a) at
the end of 4 years just after the last deposit is made, (b)
Given:
at theRend
= P100,000; j = 0.105;
of 5 years? t = 5;
(c) What ismthe
= 2; n = 10;value
present i = 0.0525
of the
fund? (a) S10
Required: (b) S (c)
Solution: (b)
S S (1 i )

S 100000 (1 . 0525)10
1
(1.0525)
0.0525
S P1,339,373.44
 Example 3.12
For 5 years, P100,000 will be deposited in a fund at the
beginning of every 6 months. If money is worth 10.5%
compounded semi-annually, how much is in the fund (a) at
the end of 4 years just after the last deposit is made, (b)
Given:
at theRend
= P100,000; j = 0.105;
of 5 years? t = 5;
(c) What ismthe
= 2; n = 10;value
present i = 0.0525
of the
fund? (a) S10
Required: (b) S (c)
Solution: (c)

S(1 i ) n
A
(1339373.44)(1.0525) 10
P802,935.46
Self-Check Exercise 3.7
Find the present value and amount of an annuity of P2,500 payable at
the beginning of each 3 months whose term is 7 years and moneys
worth is at 6.5% interest rate, compounded quarterly.

Russel owes Cathy a certain amount of money and promises to settle

her obligation by paying P4,500 at the beginning of each 3 months for 4
years and 6 months with interest at 12% converted quarterly. Find how
much the loan is.

Mrs. Coronacion wishes her son Dennis to receive a certain amount on

his 19th birthday. To realize this, Mrs. Coronacion will invest P2,500 at
the beginning of each year after Dennis turns 7. If money earns interest
at 5% compounded annually, how much will Dennis receive at the age
of 19?

Cely has been depositing P8,000 at the beginning of each month to a

bank that pays 4% compounded monthly. How much is credited to her
account (a) just after her 16th deposit is made, (b) at the end of 2 years
 Self-Check Exercise 3.7
Find the present value and amount of an annuity of P2,500
payable at the beginning of each 3 months whose term is 7
years and moneys worth is [ j = 0.065, m = 4 ].
Given: R = P2,500; j = 0.065; t = 7; m = 4; n = 28; i = 0.01625
Required: and S
Solution:
A(1 i )
A

A 2500 1 (1 . 01625) 28

(1.01625)
0.01625
A P56,789.21
 Self-Check Exercise 3.7
Find the present value and amount of an annuity of P2,500
payable at the beginning of each 3 months whose term is 7
years and moneys worth is [ j = 0.065, m = 4 ].
Given: R = P2,500; j = 0.065; t = 7; m = 4; n = 28; i = 0.01625
Required: and S
Solution:

S S (1 i )

S 2500 (1 . 01625 ) 28
1
(1.01625)
0.01625
S P89,182.87
 Self-Check Exercise 3.7
Russel owes Cathy a certain amount of money and
promises to settle her obligation by paying P4,500 at the
beginning of each 3 months for 4 years and 6 months with
interest
Given: at 12%
R = P4,500; converted
j = 0.12; t = 4.5; m = 4; quarterly.
n = 18; i = 0.03 Find how much the
loan is.
Required:
Solution:

A(1 i )
1 (1.03) 18
4500 (1.03)
0.03
P 63,747.53
 Self-Check Exercise 3.7
Mrs. Coronacion wishes her son Dennis to receive a certain
amount on his 19th birthday. To realize this, Mrs. Coronacion will
invest P2,500 at the beginning of each year after Dennis turns 7.
If money earns interest at 5% compounded annually, how much
Given: R = P2,500;
will Dennis j =the
receive at 0.05;
agetof= 19?
12; m = 1; n = 12; i = 0.05
Required:
S
Solution:

S S (1 i )

S 2500 (1 . 05)12
1
(1.05)
0.05
S P 41,782.46
 Self-Check Exercise 3.7
Cely has been depositing P8,000 at the beginning of each
month to a bank that pays 4% compounded monthly. How
much is credited to her account (a) just after her 16 th
deposit
Given: R=is P8,000;
made, (b)
j =at0.04;
the end
m = of
12;2 iyears and 6 months?
= 0.00333333
Required: (a) S16
(b) S
Solution: (a)
(1 0.00333333)16 1
S16 8000
0 . 00333333
S16 P131,250.32
 Self-Check Exercise 3.7
Cely has been depositing P8,000 at the beginning of each
month to a bank that pays 4% compounded monthly. How
much is credited to her account (a) just after her 16 th
deposit
Given: R=is P8,000;
made, (b)
j =at0.04;
the end
m = of
12;2 iyears and 6 months?
= 0.00333333
Required: (a) S16
(b) S
Solution: (b)

S 8000 (1 0 . 00333333) 30
1
(1 0.00333333)
0.00333333
S P 252,809.05
Periodic Payment given the Present Value

A R 1 (1 i ) n
i
(1 i) R n
i [1 (1 i) ](1 i )
 Periodic Payment given the Amount
S

(1
n
i ) 1 i
S
S R (1 i ) R
i [(1 i ) 1](1 i )
n
 Example 3.13
In order to accumulate P50,000 needed for the purchase of
a new sala set, Mrs. Garcia will deposit equal sums of
money at the beginning of each month for 2 years. If
money is worth 12% compounded monthly, how much
should S
Given: = P50,000;
she j = 0.12; t = 2; m = 12; n = 24; i = 0.01
deposit monthly?
Required: R
Solution:
Si
R
[(1 i ) n 1](1 i )
50000(0.01)
R
[(1 0.01) 24 1](1 0.01)
R P1,835.32
 Example 3.14
To discharge a debt of P1,200,000 made to a bank for the
purchase of a lot, Mr. Cruz promised to pay equal sums at
the beginning of each 3 months for 8 years. If money is
worth15
Given: % compounded
= P1,200,000; quarterly,
j = 0.155; t = 8; m =find
4; nthe quarterly
= 32; i = 0.03875
payment.
Required: R
Solution:
i
R
[1 (1 i ) n ](1 i )
1200000(0.03875)
R 32
[1 (1 0.03875) ](1 0.03875)
R P 63,609.01
Self-Check Exercise 3.8
Mr. De Jesus borrows P200,000 and agrees to discharge
his liability by making equal payments at the beginning of
each 6 months for 3 years. If money is worth [4.5%, m = 2],
find his semi-annual payment.

An amount of P350,000 is needed by Mr. Solis for his

business expansion at the end of 2 years. To accumulate
this amount, Mr. Solis will deposit equal amounts at the
beginning of each month for 2 years. How much must be
deposited monthly if money is worth 5% converted
monthly?
 Self-Check Exercise 3.8
Mr. De Jesus borrows P200,000 and agrees to discharge
his liability by making equal payments at the beginning of
each 6 months for 3 years. If money is worth [4.5%, m = 2],
find his
Given: =semi-annual
P200,000; j =payment.
0.045; t = 3; m = 2; n = 6; i = 0.0225
Required: R
Solution:
i
R
[1 (1 i ) n ](1 i )
200000(0.0225)
R 6
[1 (1 0.0225) ](1 0.0225)
R P35,214.66
 Self-Check Exercise 3.8
An amount of P350,000 is needed by Mr. Solis for his business
expansion at the end of 2 years. To accumulate this amount, Mr.
Solis will deposit equal amounts at the beginning of each month
for 2 years. How much must be deposited monthly if money is
worth 5%
Given: S=converted
P350,000;monthly?
j = 0.05; t = 2; m = 12; n = 24; i = 0.004166
Required: R
Solution:
Si
R
[(1 i ) n 1](1 i )
350000(0.0041 6 6 )
R
[(1 0.0041 6 6 ) 24 1](1 0.0041 6 6 )
R P13,838.99
Solving for time t given the Present Value
1 (1 i ) n
i
A
R
A (1 i ) 1 (1 i ) n

i R(1 i )
i
A i
A
(1 i ) n
1 log(1 i ) log 1
n

R(1 i ) R(1 i )
i
A
log 1
i
A R(1 i )
n log(1 i ) log 1 n
R(1 i ) log(1 i )
i
A
log 1
R(1 i )
t
m log(1 i )

Solving for time t given the Amount S
(1 i ) n
1 i
S
S R (1 i ) (1 i ) n
1
i R (1 i )
Si Si
1 (1 i ) (1 i ) 1
n n

R (1 i ) R (1 i )
Si
log 1
Si R (1 i )
n log(1 i ) log 1 n
R(1 i ) log(1 i )
Si
log 1
R (1 i )
t
m log(1 i )
 Example 3.15
Suppose payments for an annuity due are made at the beginning of
every 3 months and money is worth 14% compounded quarterly.
(a) How many full payments of P12,500 are needed to discharge a loan
of P60,000? Is the last payment still equal toP12,500? (b) How much
must be= paid
Given: on theRlast
P60,000; period toj =settle
= P12,500; 0.14;the
m obligation completely?
= 4; i = 0.035
Required: (a) n (b) Last payment that is less than the regular payment
Solution: (a) i
A
log 1
R (1 i )
n
log(1 i )
60000(0.035)
log 1
(12500)(1 0.035)
n
log(1 0.035)
n 5.15
 Example 3.15
Suppose payments for an annuity due are made at the beginning of
every 3 months and money is worth 14% compounded quarterly.
(a) How many full payments of P12,500 are needed to discharge a loan
of P60,000? Is the last payment still equal toP12,500? (b) How much
must be= paid
Given: on theRlast
P60,000; period toj =settle
= P12,500; 0.14;them obligation
= 4; i = 0.035 completely?
Required: (a) n (b) Last payment that is less than the regular payment
Solution: (b) 1 (1 0.035) 4 5
60000 12500 12500 x(1 0.035)
0.035
60000 12500 45913.49 x(1 0.035) 5
47500 45913.49 x(1 0.035) 5
1,586.51 x(1.035) 5
1,586.51
x
(1.035) 5
x P1,884.28
 Example 3.16
To create a fund of P100,000, (a) how many deposits of
P4,800 must be placed at the beginning of each month if
money accumulates at the interest rate 6%, compounded
monthly?
Given: (b) HowR much
= P100,000;
S must
= P4,800; be added
j = 0.06; m = 12;toi =the fund at the
0.005
end of the
Required: (a) nterm to complete
(b) Last deposit thatthe P100,000?
is less than the regular deposit to
complete a fund of P100,000
Solution: (a)

Si 100000(0.005)
log 1 log 1
R (1 i ) 4800(1 0.005)
n
log(1 i ) log(1 0.005)
n 19.77
 Example 3.16
To create a fund of P100,000, (a) how many deposits of
P4,800 must be placed at the beginning of each month if
money accumulates at the interest rate 6%, compounded
monthly?
Given: (b) HowR much
= P100,000;
S must
= P4,800; be added
j = 0.06; m = 12;toi =the fund at the
0.005
end of the
Required: (a) nterm to complete
(b) Last deposit thatthe P100,000?
is less than the regular deposit to
complete a fund of P100,000
Solution: (b) (1 0.005)19 1
S19 4800
0.005
S19 P95,422.64
100000 95422.64(1 0.005) x
100000 95899.75 x
x 100000 95899.75
x P 4,100.25
Self-Check Exercise 3.9
If P5,000 is placed in a fund at the beginning of each 3
months and the fund is invested at 5.75% compounded
quarterly, when will the fund contain at least P150,000?

Catacotacos Corporation has bought a machinery worth

P600,000 in installment with interest at 17.25%
compounded semi-annually. The sale agreement requires
Catacotacos Corp. for a sequence of P100,000 semi-
annual payments, the first of which is due immediately. (a)
How many full payments of P100,000 are required? (b)
How much must be paid on the last payment date to settle
the debt completely?
Self-Check Exercise 3.9
If P5,000 is placed in a fund at the beginning of each 3
months and the fund is invested at 5.75% compounded
quarterly, when will the fund contain at least P150,000?
t = 6.2054

Catacotacos Corporation has bought a machinery worth

P600,000 in installment with interest at 17.25%
compounded semi-annually. The sale agreement requires
Catacotacos Corp. for a sequence of P100,000 semi-
annual payments, the first of which is due immediately. (a)
How many full payments of P100,000 are required? (b)
How much must be paid on the last payment date to settle
the debt completely?
n = 7.82
x = 82,706.5294