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Annuities

The document discusses different types of annuities including annuity certain, contingent annuity, ordinary annuity, and annuity due. It provides examples for each type. It also discusses the formulas used to calculate the final amount, present value, and periodic payment for ordinary annuities.

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Jessa Jobelle Prescillas
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13 views3 pages

Annuities

The document discusses different types of annuities including annuity certain, contingent annuity, ordinary annuity, and annuity due. It provides examples for each type. It also discusses the formulas used to calculate the final amount, present value, and periodic payment for ordinary annuities.

Uploaded by

Jessa Jobelle Prescillas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CHAPTER 3 – MATHEMATICAL LOGIC

SIMPLE ANNUITIES

Annuity – is a sequence of equal payments made at equal intervals of time usually monthly, quarterly, semi-annually, and annually .

Examples: Installment payments, rental payments, life insurance premiums, weekly wages, and periodic pensions

Types of Annuities

Annuity Certain – is an annuity whose term is fixed when the term starts and ends on a definite date.

Example: Monthly payment on home appliances where payments start on a specified date and continue regularly until the last payment is made.

Contingent Annuity – An annuity whose term depends on some uncertain events.

Example: Life insurance premiums and pensions

Classification of Annuities

Ordinary Annuity – Is an annuity whose payments are made at the end of each payment interval.

Example: An annuity of P400 payable every end of the month for 7 years at 7% compounded monthly.

Annuity Due – Is an annuity whose payments are made at the beginning of each payment interval.

Example: An investment of P2000 is made at the beginning of each month for 5 years at 9% compounded quarterly.

Formulas (Ordinary Annuity)

Final Amount

[ ]
nt
r
(1+ ) −1
n
F= A
r
n
Where:

F = Final Amount

A = Series of periodic, equal amounts of money

r = rate (in decimal form)

n = frequency

t = time (in years)

Present Value

[ ]
−nt
r
1−(1+ )
n
P= A
r
n

Where:

P = Present Value

A = Series of periodic, equal amounts of money

r = rate (in decimal form)

n = frequency

t = time (in years)

Finding the Regular Payment or Periodic Payment

Formulas

Periodic payment if the given is sum of an ordinary annuity:

r
FV ( )
R= ¿¿
n
Periodic payment if the given is the present value of the ordinary annuity:

r
PV ( )
R= ¿¿
n

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