ANNUITY DUE

INTRODUCTION

An annuity due is an annuity whose

first payment occurs immediately, on a
day to be called the present. When we
refer to a sequence of payments as an
annuity due, we agree to think of each
payment as belonging to the following
payment interval, and to refer to the
payments as made at the beginnings of
payment intervals.
The term of an annuity due is defined as
the time from the beginning of the 1st
payment interval to the end of the last
one. Hence, the 1st payment occurs at the
beginning of the term, and it ends one
payment interval after the last payment.
The present value of an annuity due, or its
VALUE on the day of the 1st payment, is
the sum of the present values of the
payments. The amount of an annuity due,
or its VALUE at the end of the term, is the
sum of the accumulated values of the
payments at the end of the term.
 The following symbols are used in
dealing with annuity due formulas:

R = periodic payment of the annuity

due
n = total number of payments
i = interest per conversion period
FV or S = amount if an annuity due
PV or A = present value of an annuity
due
 To find the present value:

PV or A = R + R ( )

To find the amount of an annuity due:

FV or S = R ( )-R
EXAMPLES
 EASY
An investment of 5000.00 is made at the
beginning of each month for 8 years and
7 months. If interest is 12% compounded
monthly, how much will the investment
be worth at the end of the term?

Given:
R= 5,000.00 t=8.58 m= 12
r=0.12 n=103 i=0.01
Solution:

S=R( )-R
= 5000 ( ) - 5000
= 5000 ( ) - 5000
= 5000(181.4640117) 5000
= 907,320.0585 5000

S = 902,320.59
 AVERAGE
If money is worth 16% compounded
quarterly, find the present value and
the amount of annuity due of 1500.00
payable quarterly for 10 years.

Given:
R = 1500.00 m = 4 r = .16
t= 10 years i = .04 n = 40
Solution:

A=R+R( )
A = 1500 + 1500 ( )
= 1500 + 1500 ( )
= 1500 + 1500 ( )
= 1500 + 1500 (19.58448484)
= 1500 + 29376.72726

A= 30876.73

S=R( )-R
= 1500 ( ) - 1500
= 1500 ( ) - 1500
= 1500 ( ) - 1500
= 1500 (99.82653633) - 1500

S=148,239.80

 DIFFICULT

A house and lot is bought for 1,000,000.00

down payments and 5,000.00 payable at
the beginning of each month for 5 years.
What is the equivalent cash price of the
house and lot, if the interest rate is 12%
compounded monthly?

Given:
R = 5,000.00 i = .0125 t= 5 years
DP= 1,000,000.00 r = .15 m = 1 n = 60
Solution:

A=R+R( )
= 5000 + 5000 ( )
=5000 + 5000 ( )
=5000 + 5000 ( )
=5000 + 5000 ( )
=5000 + 5000 (41.56002419)
=5000 + 207,800.12
= 212,800.12 + 1,000,00.00

Cash Equivalent = 1,212,800.12

PROBLEMS
1. Mr. Jason Pajarito agrees to pay 2000.00 at the beginning of
each 6 months for 5 years. If money is worth 12 %
compounded semi-annually, find the present value of his
debt.

2. Chelsea deposits 8,000.00 at the beginning of each month

in a fund that serves at 18% compounded monthly. How
much is in the fund at the end of 4years?

3. How much will Aubrela Galaunor accumulate in her

insurance policy by age of 60 if her first semi-annual
contribution of 10,000.00 is made on her 28th birthday and
the last made six months before her birthday? Assume
that her insurance policy earns 11% compounded semi-
annually.

4. Find the present value of an annuity due of 3,700.00

payable monthly for 4 years if money is worth 6%
compounded monthly?

5. Christels Furniture is advertising a Lazy Boy Chair for 5,000.00

down monthly payments of 5,000.00 including interest at 18%
compounded monthly. What is the cash price of the chair?

6. Sans Rival Services acquired televisions under a capital base

agreement. Sans Rival Services pays the lesser 300,000.00 per
year at the beginning of each year at 10% compounded annually.
What is the long-term lease liability will Sans Rival Services report
in its financial statements?

7. Renmark pays 630.00 at the beginning of every 3 months for

8years at 7%. What will be the cash price of the cabinet acquired
by Renmark?

8. If money is worth 9% compounded semi-annually, find the

amount of an annuity due paying 935.00 for a term of 4 years.
SOLUTIONS
1. Given:
R= 2,000.00 t = 5 years r = 0.125
m = 2 i = .0625 n = 10

A=R+R( )
= 2,000 + 2,000 ( )
= 2,000 + 2,000 ( )
= 2,000 + 2,000 (6.728296515)
= 2,000 + 13456.59303

A= 15,456.59

2. Given:
R= 8,000.00 t = 4 years r = 18%
m = 12 i = .015 n = 48

S=R( )R
= 8,000.00 ( ) 8,000.00
= 8,000.00 ( ) 8,000.00
= 8,000.00 ( ) 8,000.00
= 8,000.00(71.60869758) - 8000.00
=572,869.58 - 8,000.00

S= 564,869.58
3. Given:
R= 10,000.00 t= 32 r = 11%
m=2 i = .055 n = 64

S=R( )R
= 10,000.00 ( ) 10,000.00
= 10,000.00 ( ) 10,000.00
= 10,000.00 ( ) 10,000.00
= 10,000.00 (572.0833916) 10,000.00
=5,720,833.92 10,000.00

S=5,710,833.92

4. Given:
R= 3,700.00 t = 4 years r = 6%
m = 12 i = .005 n = 48

A=R+R( )
= 3,700.00 + 3,700.00 ( )
= 3,700.00 + 3,700.00 ( )
= 3,700.00 +3,700.00 (41.79321937)
= 3,700.00 + 154,634.91

A= 158,334.91
5. Given:
R= 5,000.00 t = 1 r = 18%
m = 12 i = .015 n = 12

A=R+R( )
= 5,000.00 + 5,000.00 ( )
= 5,000.00 + 5,000.00 ( )
= 5,000.00 + 5,000.00(10.07111778)
= 5,000.00 + 50,355.59

A= 55,355.59

6. Given:
R= 300,000.00 t = 6 r = 10%
m=1 i = .10 n = 6

A=R+R( )
= 300,000.00 + 300,000.00 ( )
= 300,000.00 + 300,000.00 ( )
= 300,000.00 + 300,000.00(0.379078676)
= 300,000.00 + 1,137,236.03

A= 1,437,236.03
7 . Given:
R= 630.00 t = 8 years r = 7%
m=4 i = .0175 n = 32

A=R+R( )
= 630.00 + 630.00 ( )
= 630.00 + 630.00 ( )
= 630.00 + 630.00 (23.7698765)
= 630.00 + 14,975.0222

A= 15,605.02

8. Given:
R=935.00 t = 4 years r = 9%
m=2 i = .045 n = 9

S=R( )R
= 935.00 ( ) 935.00
= 935.00 ( ) 935.00
= 935.00 (12.28820937) 935.00
= 11,489.47576 935.00

S=10,554.47576
 Created by:

Ara Kimberly Marcillan & Christine Angela

Jhoy Menor
1-BSCOA2