ANNUITIES

PREPARED BY: ENGR. JELZ DELA CRUZ

Ans. P42,821.87
 SAMPLE PROBLEM 2
• A manufacturing firm wishes to give each 80 employees a
holiday bonus. How much is needed to invest monthly for
a year at 12% nominal interest rate, compounded monthly,
so that each employee will receive a P2,000.00 bonus.

Ans. P12,615.80
 SAMPLE PROBLEM 3
• How much money must you invest today in order to withdraw
P2000 annually for 10 years if the interest rate is 9%?

Ans. P12,835.32
 SAMPLE PROBLEM 4
• Maintenance cost of an equipment is P20,000 for 2 years,
P40,000 at the end of 4 years and P80,000 at the end of 8
years. Compute for the semi-annual amount that be set aside
for this equipment. Money worth 10% compounded annually.

Ans. P7425
 SAMPLE PROBLEM 5
• Mr. Ramirez borrowed P15,000 two years ago. The terms
of the loan are 10% interest for 10 years with uniform
payments. He just made his second annual payment. How
much principal does he still owe.

Ans. P13,023.52
SEATWORK:
1. What is the present worth of a 3 years annuity paying P3,000 at the end of each year,
with interest at 8% compounded annually?
2. How much must be deposited at 6% each year beginning on January 1, year 1, in
order to accumulate P5,000 on the date of the last deposit, January 1, year 6?
3. An instructor plans to retire in one year and want an account that will pay him
P25,000 a year for the next 15 years. Assuming a 6% annual effective interest rate,
what is the amount he would need to deposit now?
PROBLEM SET (ORDINARY ANNUITY)
4. A piece of machinery can be bought for 10,000 cash, or for 2,000 down and payments
of P750 per year for 15 years. What is the annual interest rate for the time payments?
5. A debt of P10,000 with 10% interest compounded semi-annually is to be amortized by
semi-annual payments over the next 5 years. The first due is 6 months. Determine the
semi-annual payments.
6. The president of a growing engineering firm wishes to give each of 50 employees a
holiday bonus. How much is needed to invest monthly for a year at 12% nominal
interest rate compounded monthly, so that each employees will receive a P1,000
bonus?
7. A man inherited a regular endowment of P100,000 every end of 3 months for 10
years. However, he may choose to get a single lump sum payment at the end of 4
years. How much money is this lump sum if the cost of money is 14% compounded
quarterly.
 DEFERRED ANNUITY
•• It
  is also ordinary annuity but the payment of the first amount is
deferred a certain number of periods after the first.
 SAMPLE PROBLEM 1
• A man loans P187,400 from a bank with interest at 5%
compounded annually. He agrees to pay his obligations by
paying 8 equal payments, the first being due at the end of 10
years. Find the annual payments.

Ans. P44,981
 SAMPLE PROBLEM 2
• A house and lot can be acquired a down payment of
P500,000 and a yearly payment of P100,000 at the end of
each year for a period of 10 years, starting at the end of 5
years from the date of purchase. If money is worth 14%
compounded annually, what is the cash price of the property?

Ans. P808,835.92
SEATWORK:
1. A father wishes to provide P4,000 for his son on his 21st birthday. How much should
he deposit every 6 months in a savings bank which pays 3% converted semi-annually,
if the first deposit is made when the son is 3 ½ year old?
2. A businessman borrowed P300,000 and agrees to discharge his obligations by paying
a series of 8 equal payments of P57434.78 the first being due at the end of 5 ½ years.
Find the rate of interest he is paying if it is compounded semi-annually.
3. An annual deposit of P1,270 is placed on the fund at the end of year for 6 years. If
the fund invested has a rate of interest of 5% compounded annually, how much is the
worth of this fund at the end of 9 years?
PROBLEM SET (DEFERRED ANNUITY)
1. The cash price of an apartment condominium is P85,908 and can be acquired by a
down payment of P50,000 and a yearly payment of P10,000 at the end of each year
for 10 years starting at the end of 5 years from the date of purchase. If money is
worth “x” percent compounded annually, what is the value of x?
2. If money is worth 5% compounded semi-annually, find the present value of a
sequence of 12 semi-annual payments of P500 each, the first of which is due at the
end of 4 ½ years.
3. A businessman borrowed P300,000 with interest at the rate of 6% compounded
semi-annually. He agrees to discharge his obligation by paying a series of 8 equal
semi-annual payment, the first being due at the en of 5 ½ years. Find the semi-
annual payments.
4. XYZ Inc. plans to construct an additional building at the end of 10 years for an
estimated cost of P5,000,000. To accumulate this amount it will have equal year-end
deposit in a fund earning 13%. However, at the end of the 5th year, it was decided to
have a larger building that originally intended to an estimated cost of P8,000,000.
What should be the annual deposit for the last 5 years?
5. Today is September 2, 1978. Ten years ago, you deposited P10,00 per month. You
made the deposit continuously for 6 years and then stopped. In September 2, 1982,
you established a belt and nut factory. Starting September 2 1982, you withdraw
P100 a month for advertisement. How many months can you withdraw before the
money is exhausted? Interest is 6% compounded monthly.
 ANNUITY DUE
•  • Annuity Due – is one where payments are made at the start of
each period, beginning from the first period.
 SAMPLE PROBLEM 1
• A man wishes to have 35,000 when he retires 15 years from
now. If he can expect to receive 4% annual interest, how much
he set aside in each of 15 equal annual beginning of year
deposits?

Ans. P1680.71
 SAMPLE PROBLEM 2
• A man owes P10,000 with interest at 6% payable semi-
annually What equal payments at the beginning of each 6
months for 8 years will discharge his debt?

Ans. P772.93
 SAMPLE PROBLEM 3
• Engr. Sison borrows P100,000 at 10% effective annual interest.
He must pay back the loan over 30 years with uniform monthly
payments due on the first day of each month. What does Engr.
Sison pay each month?

Ans. P839
 PERPETUITY
•  • Perpetuity – is one where the payment periods extend forever or
in which the periodic payments continue indefinitely.
 SAMPLE PROBLEM 1
• What present amount would be needed for annual end of
year payments of P15,000 each, forever if money is worth 8%

Ans. 187500
 SAMPLE PROBLEM 2
• What amount of money deposited 20 years ago at 4% interest
would provided perpetual payment of P2,000 per year?

Ans. P22819.35
CONTINUOUSLY COMPOUNDING

•  • Compounded Continuously
 SAMPLE PROBLEM 1
• Six hundred pesos is deposited each year into a savings
account that pays 6% nominal interest, compounded
continuously. How much will be in the account at the end
of 8 years.

Ans. P5977.77
 SAMPLE PROBLEM2
• A man borrows P100,000 at a rate of 6% compounded
continuously for 5 years. How much must he pay annually
if money is compounded continuously.

Ans. P23858.37
SEATWORK:
1. On retirement, a workman finds that his company pension calls for a payment of
P300 to him or to his estate if he dies at the beginning of each month for 20 years.
Find the present value of this pension at 5% compounded monthly.
2. Under a factory savings plan, a workman deposits P25 at the beginning of each
month for 4 years, and the management guarantees accumulation at 6%
compounded monthly. How much stands to the workman’s credit at the end of 4
years.
3. Find the present value of a perpetuity of P100 payable semi-annually if money is
worth 4% compounded quarterly.
4. Each year a single payment of P1766 is deposited in an account that earns 6%
compounded continuously. What is the amount in the account immediately after the
5th payment.
PROBLEM SET (ANNUITY DUE)
1. A man will deposit P200 with a savings and loan association at the beginning of
each 3 months for 9 years. If the association pays interest at the rate of 5.5%
quarterly, find the sum to his credit just after the last deposit.
2. Engr. Peter Aventajado loan an amount of P100,000 at a local commercial bank at
10% compounded annually. How much is his monthly payment if he is required to
pay at the beginning of the first day of the month for a period of 30 years?
3. At what interest rate payable quarterly will payments of P500 at the beginning of
each 3 months for 7 years discharge a debt of P12,500 due immediately.
(PERPETUITY)
4. If money is worth 8%, obtain the present value of perpetuity of P1,000 payable
annually when the first payment due at the end of 5 years.
5. Find the present value, in pesos, of a perpetuity payable semi-annually if money
is worth 8% compounded quarterly.
(CONTINUOUSLY COMPOUNDING)
1. A businessman borrowed P200,000 and agrees to pay P47,719.73 annually for “x”
year at the rate of 6% compounded continuously. Find the value of x.
2. A man wishes to have an amount of P2769.84 after 5 years. He deposited P500
each year into a savings bank that pay “r” per cent annum compounded
continuously. Compute the value of r.