SH1612

Mesmerized and Annuitized

Annuities

Directions: Solve the following items.

1. Payments of ₱3,500 will be made at the beginning of every month for 20 years. If this annuity
is compounded monthly at an interest of 7.2%, solve for the future and present value of this
annuity.
(1+𝑖)𝑛 −1
𝐹𝑉𝑎𝑑 = 𝐶 [ ] (1 + 𝑖)
𝑖
0.072 12(20)
(1+ ) −1 0.072
12
𝐹𝑉𝑎𝑑 = 3500 [ 0.072 ] (1 + )
12
12
(1+0.006)240 −1
𝐹𝑉𝑎𝑑 = 3500 [ ] (1 + 0.006)
0.006
(1.006)240 −1
𝐹𝑉𝑎𝑑 = 3500 [ ] (1.006)
0.006
4.202574033−1
𝐹𝑉𝑎𝑑 = 3500 [ ] (1.006)
0.006
3.202574033
𝐹𝑉𝑎𝑑 = 3500 [ ] (1.006)
0.006
𝐹𝑉𝑎𝑑 = 3500(533.7623389)(1.006)
𝐹𝑉𝑎𝑑 = ₱1,879,377.195
The amount of this annuity after 20 years is ₱1,879,377.20.

1−(1+𝑖)−𝑛
𝑃𝑉𝑎𝑑 = 𝐶 [ ] (1 + 𝑖)
𝑖
.072 −12(20)
1−(1+ 12 ) .072
𝑃𝑉𝑎𝑑 = 3500 [ .072 ] (1 + )
12
12
1−(1+0.006)−240
𝑃𝑉𝑎𝑑 = 3500 [ ] (1 + 0.006)
0.006
1−(1.006)−240
𝑃𝑉𝑎𝑑 = 3500 [ ] (1.006)
0.006
1−0.2379494072
𝑃𝑉𝑎𝑑 = 3500 [ ] (1.006)
0.006
0.7620505928
𝑃𝑉𝑎𝑑 = 3500 [ ] (1.006)
0.006
𝑃𝑉𝑎𝑑 = 3500(127.0084321)(1.006)
𝑃𝑉𝑎𝑑 = ₱447,196.6895
The amount of this annuity at the present is ₱447,196.70.

2. Solve for the present and future value of an ordinary annuity if payments of ₱7,500 are made
every quarter for 15 years at 5% interest compounded quarterly.
(1+𝑖)𝑛 −1
𝐹𝑉𝑜𝑎 = 𝐶 [ ]
𝑖
.05
(1+ 4 )4(15) −1
𝐹𝑉𝑜𝑎 = 7500 [ .05 ]
4
(1+0.0125)60 −1
𝐹𝑉𝑜𝑎 = 7500 [ ]
0.0125

07 Teaching Materials 3 *Property of STI

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 SH1612

(1.0125)60 −1
𝐹𝑉𝑜𝑎 = 7500 [ ]
0.0125
2.107181347−1
𝐹𝑉𝑜𝑎 = 7500 [ ]
0.0125
1.107181347
𝐹𝑉𝑜𝑎 = 7500 [ ]
0.0125
𝐹𝑉𝑜𝑎 = 7500(88.57450776)
𝐹𝑉𝑜𝑎 = ₱664,308.8082
The annuity will amount to ₱664,308.81 in 15 years.

1−(1+𝑖)−𝑛
𝑃𝑉𝑜𝑎 = 𝐶 [ ]
𝑖
.05
1−(1+ 4 )−4(15)
𝑃𝑉𝑜𝑎 = 7500 [ .05 ]
4
1−(1+0.0125)−60
𝑃𝑉𝑜𝑎 = 7500 [ ]
0.0125
1−(1.0125)−60
𝑃𝑉𝑜𝑎 = 7500 [ ]
0.0125
1−0.4745676026
𝑃𝑉𝑜𝑎 = 7500 [ ]
0.0125
0.5254323974
𝑃𝑉𝑜𝑎 = 7500 [ ]
0.0125
𝑃𝑉𝑜𝑎 = 7500(42.03459179)
𝑃𝑉𝑜𝑎 = ₱315,259.4385
The annuity is worth ₱315,259.44 at the present.
3. Josh made payments amounting ₱25,000 every quarter for 12 years, to be compounded
quarterly at 4.5% interest. How much is the present value of this annuity if it will be
deferred for 2 years?
1−(1+𝑖)−𝑛
𝑃𝑉𝑑𝑎 = 𝐶 [ ] (1 + 𝑖)−𝑘
𝑖
.045 −4(12)
1−(1+
4
) .045 −2
𝑃𝑉𝑑𝑎 = 25000 [ .045 ] (1 + )
4
4
1−(1+0.01125)−48
𝑃𝑉𝑑𝑎 = 25000 [ ] (1 + 0.01125)−2
0.01125
1−(1.01125)−48
𝑃𝑉𝑑𝑎 = 25000 [ ] (1.01125)−2
0.01125
1−0.5845078366
𝑃𝑉𝑑𝑎 = 25000 [ ] (0.9778740712)
0.01125
𝑃𝑉𝑑𝑎 = 25000(36.93263674)(0.9778740712)
𝑃𝑉𝑑𝑎 = ₱902,886.6963
The present value of this annuity is ₱902,886.70.

07 Teaching Materials 3 *Property of STI

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