Mathematics

Financial

Theme 7: Annuities I

Escuela Negocios
Learning Achievement No. 7:
Perform financial transactions with
annuities or temporary rents
defeated.
TOPIC 7:
Annuities I

SUBTOPICS:
{"text":"Basic definitions"}
Immediate expired temporary annuities.
Financial Mathematics

ANNUITIES I
DEFINITION OF INCOME
• A financial income is a set of
capitals with some due dates that
they complete a time interval.
• It is called rent to the set of capitals
related to some periods of
successive times, in which these
they are available.

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Financial Mathematics

DEFINITION OF INCOMES
Source of income: economic phenomenon that gives rise to the emergence of income.
Origin: the moment when the first capital begins to accrue.
Final: moment when the last capital is fully accrued.
Duration: time that elapses from the origin to the end of the income.
Term: each of the capitals that make up the income.
Period: interval of time between two consecutive capitals.
Such interest: rate used to move the income capital.

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Financial Mathematics

CLASSIFICATION OF TEMPORARY CASH FLOW SERIES

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Financial Mathematics

Capitalization of uniform temporal series

Capitalization factor of the series (CFS)
• It serves to transform a constant cash flow into a final stock.

(1i)+ 1 n - (1i)+ 1n -
FCSi = F = A *FCSin F = A*
n i i

Application cases
1. A person deposits $500 into a savings account at the end of each quarter. What
It will be the accumulated amount over 4 years if the interest rate is 18% compounded.
quarterly?
DATA SOLUTION F = A * FCS
A = $500 quarterly
F=?
n = 4 years x 4 = 16 quarters.
j = 0.18 annual
m=4 =500∗ ¿¿
F = S / 11,359.67
Financial Mathematics

2. What will be the amount in a savings account at the end of the month and for 6 consecutive months?
Is S/ 1000 deposited in a bank that pays an annual effective interest rate (TEA) of 10%?

DATA SOLUTION
F=?
n = 6 months F = A * FCS

F = ∗ ¿¿
A = S/ 1000 monthly
TEA = 0.10

F =1 000 ∗ ¿ ¿
6120.89
Financial Mathematics

The amortization fund

Deposit factor to the amortization fund (FDFA i,n)
• It serves to transform a final stock into a constant cash flow.

i i
FDFA i = A = F * i
FDFA A= F *
n n (1)+1 i n -
(1 + i n) - 1

Application cases
1. Calculate the amount of a rent placed at the end of each quarter for 10 years.
allows to build an amount of S/ 10,000. The annual nominal interest rate is 24% with monthly compounding.

DATA SOLUTION A = F * FDFA

A trim.
n = 10 years = 40 trim. = ∗
F = S / 10000 ¿¿
TNA = 0.24 0.061208
=10000*
m = 12 ¿¿
= /62.68
Financial Mathematics

2. It is planned to replace a machine within 12 months, the price of which is estimated at that date.
It will be S/ 12,000. What constant amount at the end of the month must be deposited during that period in
a bank that offers an annual effective interest rate (TEA) of 30% in order to buy that machine with the capitalized savings?

DATA SOLUTION
n = 12 months A = F * FDFA
F = S / 12000
A mens.
TEA = 0.30

A monthly

A monthly = S/ 736.82
Financial Mathematics

Calculation of the number of periods and the interest rate

• Calculation of the number of periods
How long will it take to accumulate an amount of S/ 5,000 by making deposits of S/ 180?
monthly, in a bank that pays an annual effective rate of 18%?
DATA 1+ 0.01388843035 ) -1
in months = ? F = A * FCS 27.77777778= (
0.01388843035
F = S / 5000 By trial and error:
A men's. = S/ 180 F = FCS
A n Factor
TEA = 0.18 23 26.88040615
SOLUTION
5000 = ((1+i)n-1) 27.77777778
180 i 24 28.25373279
Interpolating:
0.01388843035 n - 23 = 27.77777778 - 26.88040615
24 . 23 28.25373279 - 27.77777778

n - 23 = 0.65342913
n = 23.65342913 months
Financial Mathematics

Calculation of the number of periods and the interest rate

• Calculation of the interest rate number
A person deposited S/ 200 at the end of each month into their capitalization account of an AFP.
for 15 years. At the end of the term, the AFP informed you that your accumulated fund is S/
500,000. What was the effective monthly yield of your deposits?
DATA
A men's. = S/ 200 2500 = ((1+i)180-1) Interpolating:
n = 15 years = 180 months i TEM - 2 = 2500 1716.041568
F = S / 500,000 By trial and error: 3-2 6783.445318 - 1716.041568
TEM = ?
i(%) Factor
SOLUTION 2 1716.041568 TEM - 2 = 0.15470613
F = A * FCS TEM 2500 TEM = 2.15470613%
3 6783.445318
F = FCS
A

500000 = ((1+i)n -1)

200 i
Financial Mathematics

Update of uniform temporary series or rents

Series Update Factor (FAS)
• It serves to transform a constant cash flow to the present.

Application cases
=¿¿ = ∗
= ∗ ¿¿
1. Pedro Lorenzo saves S/ 500 soles monthly for 10 years. How much does he save?
what are those savings worth today if the interest rate is 28% annually compounding
quarterly?
DATA SOLUTION
A mens. = S/ 500
n = 10 years = 120 months P = 500*
P = S/ ?
J anual = 0.28
=0.02280912
P = A * FAS P = S/ 20457.16
m=4
Financial Mathematics

2. There is a semiannual income flow of $600 each for 5 years. What is its
equivalent today to an EAR of 28%.

Amortization
Capital recovery factor (CRF)
• It is used to transform a present value into a constant cash flow.

= ¿¿ = ∗
= ∗ ¿¿
Financial Mathematics

Application cases
1. What is the uniform monthly fee to be charged for a loan of S/ 20,000 granted to the
company QUE BUENA S.A.A, with an interest rate of 30%, for 5 years?
DATA SOLUTION
A mens. = S/ ?
P = S / 20000 P = 500*
TEA = 0.30
n = 5 years = 60 months
P = S / 20457.16

2. The company TODO RICO S.A.A takes a loan from the credit bank for S/ 50,000.
to be paid over 10 years, at an interest rate of 20% per year compounded
Quarterly, how much will each installment of the debt payment amount to?
Financial Mathematics

Calculation of the interest rate and the number of periods

Calculation of the interest rate

• What interest rate does a capital of S/ 300,000 generate a constant flow for 10 years?
cash of S/ 35,000 annually?
DATA SOLUTION
TEA = ?
P = S / 300000
n = 10 years
A anual = S/ 35000
Calculation of the number of periods
• How many installments of S/ 1,500 payable at the end of each month will be needed to pay off a loan?
From S/ 20,000? The financial entity charges a monthly interest rate of 2%.
Financial mathematics

Checking what has been learned

What does FCS mean?
2. What is the FCS used for?
What does FDFA mean?
4. What is the FDFA for?
Activity
Financial Mathematics

Activity
Working in a team, develop the following:
1. A person deposits a constant amount into a savings account at the end of each month.
S/ 500. ¿Qué monto acumulará en el plazo de 10 años percibiendo una TNA del 24%
capitalizable quarterly?
2. Calculate the amount of the constant rent placed at the end of each month and for 5 years.
allow to establish an amount of S/ 20000. The applicable annual nominal interest rate is 24% with capitalization
monthly.
4. It is planned to replace a machine in 4 months, the price of which is estimated to be in that
The amount will be S/ 5,000. What constant amount at the end of the month should be deposited during that
term in a bank that pays a TIN of 5%, in order to purchase that machine with savings
capitalized?
5. Pedro Ruiz saves S/ 1000 monthly for 10 years. How much do those amount to today?
savings at an annual equivalent rate of 15%?

6. Juan Ramírez requests a loan from a bank for S/ 20,000, with an annual effective interest rate of 20%, for a period of 5
years. How much is the monthly payment?
Thank you!