Present value of an annuity

R=10,000; j=12%; m=1; t=3 years

.12
= =
= 0.12; = = 31 = 3

1
= 1+

= 10,000 1 + 0.12
= 10,000 1 + 0.12
= 10,000 1 + 0.12
TOTAL
=

1 1+

1
2
3

= 8,928.57
= 7,971.94
= 7,117.80
24,018.31

=10,000

1 1+0.12 3
0.12

= 24,018.31

Present value of an annuity due

R=10,000; j=12%; m=1; t=3 years

.12
= =
= 0.12; = = 31 = 3

1
= 1+

= 10,000 1 + 0.12
= 10,000 1 + 0.12
TOTAL

=+

1 1+ (1)

1
2

10,000.00
= 8,928.57
= 7,971.94
26,900.51

=10,000+10,000

1 1+0.12 (31)
0.12

= 26,900.51

Present value of an annuity due

1 1 + (1)
=+

1 1 + (1)
= 1+

+ 1 1 + (1)
=

(1 + ) 1 + (1)
=

1 1+

= (1+i)

(1+i)

Amount of an annuity
R=10,000; j=12%; m=1; t=3 years

.12
= =
= 0.12; = = 31 = 3

= (1 + )
10,000
11,200 = 10,000 1 + 0.12
12,544 = 10,000 1 + 0.12
33,744

TOTAL
=

1+ 1

=10,000

1+0.12 3 1
0.12

= 33,744

1
2

Amount of an annuity due

R=10,000; j=12%; m=1; t=3 years

.12
= =
= 0.12; = = 31 = 3

11,200
= 10,000 1 + 0.12
12,544
= 10,000 1 + 0.12
14,049.28 = 10,000 1 + 0.12
37,793.28

TOTAL

= (1 + )

1+ (+1) 1

=10,000

1+0.12 (3+1) 1
0.12

1
2
3

10,000 = 37,793.28

Amount of an annuity due

=
=
=
=

1+

(+1)

1+

(+1)

1+

(+1)

1+

(+1)

(1 + )

1+ 1
=
(1 + )

= (1 + )

Relationship between and

- Same as relationship between and

= (1 + 1)

= (1 + 1)

= (1 + 1)

= (1 + 1)

Exercises on determining present value and

amount of annuity due

Activity 3.6, No.1a, p. 145

Given: R= 4,350; j=12%; m=12
t=2yrs & 4 mos
= (1 + )
1 1+
=

= 4,350

(1 + )

4
(2
0.12
12x12)
1+ 12
0.12
12

=106,834.29

.12
1 + 12

Activity 3.6, No.1a, p. 145

Given: R= 4,350; j=12%; m=12
t=2yrs & 4 mos
= (1 + )
1+ 1
=
(1 + )

= 4,350

4
(2
0.12
12x12)
1+ 12
1
0.12
12

= 141,159.19

.12
1 + 12

Activity 3.6, No.1b, p. 145

Given: R= 4,350; j=16%; m=12
t=4yrs & 1 mo
= (1 + )
1 1+
=

= 4,350

(1 + )

1
(4
0.16
12x12)
1+ 12
0.16
12

=157,841.77

.16
1 + 12

Activity 3.6, No.1b, p. 145

Given: R= 4,350; j=16%; m=12
t=4yrs & 1 mo
= (1 + )
1+ 1
=
(1 + )

= 4,350

1
(4
0.16
12x12)
1+ 12
1
0.16
12

= 302,055.03

.16
1 + 12

Exercises on determining the remaining liability,

amount of deposit, and periodic payment

Activity 3.7, No.1a, p. 147

Given: R= 6,000 (beg. of each month);
j=15%; m=4
t=3 yrs & 3 mo
a. Original size of the debt
= (1 + )
1 1 +
=
(1 + )

0.15
1 1+
4
= 6,000
0.15
4
=63,136.16

3
(312x4)

0.15
1+
4

Activity 3.7, No.1b, p. 147

Given: R= 6,000 (beg. of each month);
j=15%; m=4
3
t=3 yrs & 3 mo; n=tm= 3 x4=13
12
b. Remaining liability just before the 4th pmt.
1 1 + ()
= +

= 6,000 + 6,000

=51,124.60

0.15 (134)
1+
4
0.15
4

Activity 3.7, No.1c, p. 147

Given: R= 6,000 (beg. of each month);
j=15%; m=4
3
t=3 yrs & 3 mo; n=tm= 3 x4=13
12
c. Remaining liability just after the 7th pmt.
1 1 + ()
=

7 = 6,000

=31,710.43

0.15 (137)
1+
4
0.15
4

Activity 3.7, No.2a, p. 147

Given: R= 25,000 (beg. of each 6 months);
j=5%; m=2
t=10 years
a. How much is the fund just after the 8th deposit
1+ 1
=

0.05 8
1+ 2
1
8 = 25,000
0.05
2
=218,402.90

Activity 3.7, No.2a, p. 147

Given: R= 25,000 (beg. of each 6 months);
j=5%; m=2
t=10 years
a. How much is the fund just after the 8th deposit
ALTERNATIVE SOLUTION
7 = (1 + )
1+ 1
=
(1 + )

= 25,000

0.05 7
1+
1
2
0.05
2

1+

0.05
2

= 193402.8975
8 = 7 + R = 193402.8975 + 25,000 = 218,402.90

Activity 3.7, No.2b, p. 147

Given: R= 25,000 (beg. of each 6 months);
j=5%; m=2
t=10 years
b. How much is the fund just after the last 25,000
deposit (10x2=20th deposit)
1+ 1
=

20
0.05
1+ 2
1
20 = 25,000
0.05
2
=638,616.44

Activity 3.7, No.2c, p. 147

Given: R= 25,000 (beg. of each 6 months);
j=5%; m=2
t=10 years
c. How much is the fund at the end of 10 years
= (1 + )
1+ 1
=
(1 + )

= 25,000

0.05 (10x2)
1+ 2
1
0.05
2

= 654,581.85

0.05
1+ 2

Determining period payment

Determining period payment

Activity 3.7, No.3, p. 148

Given: = 2,000,000
j=16%; m=1
t=15 years
Required: R (annual payment)

=
1 1 + (1 + )

0.16
1
0.16 15
0.16
1+ 1
1+ 1

2,000,00

= 309,237.11

Activity 3.7, No.4, p. 148

Given: = 300,000
j=5%; m=2
t=2 years
Required: R (semi-annual payment)

=
1 + 1 (1 + )

300,000

0.05
2

0.05 (22)
1+ 2
1

= 70,483.28

0.05

1+ 2

Determining time (t)

Determining time (t)

Self-Check Exercise 3.9, No.1, p. 122

Given: = 5,000
j=5.75%; m=4
=150,000
Required: t

log 1 +
(1 + )
=
m log(1 + )
0.0575
4
log 1+
0.0575
5,000(1+
)
4
0.0575
4 log(1+
)
4
150,000

= 6.2054 or 6 yrs. and 3 mos.

Self-Check Exercise 3.9, No.2a, p. 123

Given: = 100,000
j =17.25%; m=2
=600,000
Required: t

log 1
(1 + )
=
log(1 + )
log

0.1725
2
1
0.1725
100,000(1+
)
2
0.1725
log(1+
)
2
600,000

= 7.82 = 7 full payments

Self-Check Exercise 3.9, No.2b, p. 123

Given: = 100,000
j=17.25%; m=2
=600,000
Required: the amount to be paid on the last
payment date
Equation of values:
.
+

600,000=100,000+100,000
.

X=

600,000 100,000 , .
+

.
+ +

= , .