Scribd
Upload
4 views3 pages

Annuity Due: Present Value & Calculations

This document discusses annuity due and provides formulas and examples for calculating present value and amount of annuity due. It defines annuity due as payments made at the beginning of each period. Formulas are given for present value of annuity due (Á), amount of ordinary annuity (Ś), and periodic payment (R). Two sample problems apply the formulas to calculate present value, amount, and required periodic deposits for different annuity scenarios.

Uploaded by

Gian Luigi Katigbak
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
4 views3 pages

Annuity Due: Present Value & Calculations

This document discusses annuity due and provides formulas and examples for calculating present value and amount of annuity due. It defines annuity due as payments made at the beginning of each period. Formulas are given for present value of annuity due (Á), amount of ordinary annuity (Ś), and periodic payment (R). Two sample problems apply the formulas to calculate present value, amount, and required periodic deposits for different annuity scenarios.

Uploaded by

Gian Luigi Katigbak
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

Module 5 Topic 1

Annuity Due – paid at the beginning of the payment interval. House rent is an example of
annuity due. It means that you pay the rental in advance before you use the space or the
house.

Terminologies
1. Present value of an annuity due – the value at the first payment date. Denoted by capital
letter A with a bar Á. This read as A bar
2. Amount of an ordinary annuity – its value one period after the last payment. Denoted by
capital letter S with a bar Ś. This is read as S bar.

Formula:
1−( 1+i )−n
Present value Á=R+ R ⌈ ⌉
i
Amount
(1+i )n−1
Ś=R ⌈ ⌉−R
i
Periodic payment of A bar
Á
R= −n
1−( 1+i )
1+
i
Periodic payment of S bar
Ś
R= n
( 1+ i ) −1
−1
i

Sample Problems
1. Find the present value and the annuity due amount pf P5,500 payable semi-annually for 9 ½
years. Money is worth 7% compounded semi-annually.
Given:
R = 5,500
j = 7%
m = semi-annual or 2
i = 7%/2 or 3.5% or .035
t = 9 ½ years or 9.5 years
n = t x m or 9.5 x 2 = 19

Find the present value

1−( 1+i )−n


Á=R+ R ⌈ ⌉
i
1−( 1+.035 )−19
Á=5,500+5,500 ⌈ ⌉
.035

1−( 1 .035 )−19


Á=5,500+5,500 ⌈ ⌉
.035

1−( .52015569 )
Á=5,500+5,500 ⌈ ⌉
.035

.479844309
Á=5,500+5,500 ⌈ ⌉
.035

Á=5,500+5,500 ⌈ 13.70983742⌉

Á=5,500+75,404.1058

Á=80,904.11

Find the amount of annuity due

(1+i )n−1
Ś=R ⌈ ⌉−R
i

(1+.035 )19−1
Ś=5,500 ⌈ ⌉−5,500
.035

(1 .035 )19−1
Ś=5,500 ⌈ ⌉ −5,50 0
.035

(1.922501317 )−1
Ś=5,500 ⌈ ⌉−5,50 0
.035

(.922501317 )
Ś=5,500 ⌈ ⌉−5,50 0
.035

Ś=5,500 ⌈ 26.3571805 ⌉−5,50 0

Ś=144,964.4927−5,50 0

Ś=139,464.49
2. How much must be deposited at the beginning of every 3 months in a fund giving 12%
compounded quarterly in order to have P300,000 in 5 years?
Given:
Ś = P300,000
j = 12%
m = quarterly or 4
i = 12%/4 or 3% or .03
t = 5 years
n = t x m or 5 x 4 = 20

How much must be deposited quarterly?


Ś
R= n
( 1+ i ) −1
−1
i

300,000
R=
( 1+ .03 )20−1
−1
.03

300,000
R=
( 1.03 )20−1
−1
.03

300,000
R=
( 1.806111235 )−1
−1
.03

300,000
R=
.806111235
−1
.03

300,000
R=
26.87037449−1

300,000
R=
25.87037449

R=11,164.71

You might also like