• compounded annually
• An Engineer construct a house and sell it on
monthly installments of P25,000 and it will be
fully paid in 7 years. If the rate of interest is
12% compounded monthly, what is the
equivalent cash price of the house in
thousand of pesos?
A [ ( 1 + i )n – 1]
P=
( 1 + i )n i
0 1 2 3 4 5 82 83 84
A A A A A A A A
P
25, 000 [ ( 1 + 0.01)84 - 1 )]
P=
( 1 + 0.01)84 (o.01)
input Calculator !
ans. P = 1, 416, 211.32
0 1 2 3 4 5 82 83 84
A A A A A A A A
A [ ( 1 + i )n – 1] F
F=
i
25, 000 [ ( 1 + 0.01)84 - 1 )]
F=
0.01
Calculator!
F = 3, 266, 806.86
rechecking
F = P ( 1 + i )n
P = 1, 416, 211. 32
Problem 2
Compound Interest
Ordinary annuity
A Geodetic Engineer wants to provide his newly born
son a lump sum of one million pesos when he starts
college at the end of 17 yrs. To achieve this, he deposits
at the end of every month a certain amount in a fund
that pays an interest rate of 12% compounded
monthly. How much is the monthly deposit.
A [ ( 1 + i )n – 1]
F=
i
Given
• n = compounded monthly for 17 years
n = (12mos./yr )(17 yrs)
n = 204 mos.
• i = (12%)/(12mos.)
• i = 0.01
0 1 2 3 4 5 202 203 204
A A A A A A A A
F = 1 000 000
A[(1+i )n –1]
F =
i
1 000 000 = A [(1 + 0.01) 204 - 1
0.01
Calculator !
ans:
A = 1512.15
• The following terms of payment for an annuity are as follows:
• What is the Present Worth of all payments if it is paid at the end of each
month.
– Ans : 1, 241, 911.25
• What is the difference bet the present values of an annuity due and an
ordinary annuity on these payments.
– Ans : 18, 628.67
0 1 2 3 4 5 178 179 180
A A A A A A A A = 20, 000
P = A [ ( 1+ i )n - 1]
( 1+ i )n ( i )
Ans :
P = 1, 241, 911.246
What is the difference between the sums of an annuity due and an ordinary annuity
on these payments.
Ans : 271, 687.35
A = 20, 000
A A A A A A A
Ordinary Annuity F = A [ ( 1 + i )n - 1]
i
A A A A A A A A = 20, 000
A [ ( 1 + i )n - 1] = F1
Annuity Due i F2 = P(1+i)n
• Ordinary Annuity • Annuity Due
• F = A[(1+i)n – 1] • F = P(1+i)n
i
• F = 18, 112, 490.25 (1+0,015)1
• F = 18, 384, 177.60 ann. due.
• F = 20000[(1+0.015)180 –1]
0.015 • “Note that n = 1 bec. there is no
succeeding date…. after 180
months…”
• F = 18, 112, 490.25 ord. ann.
• Ann. Due. - Ord. Ann. = difference
• “Future worth in Ord. Ann. will become
Present Worth with respect to Ann.
Due.” • = 18, 384, 177.60 - 18, 112, 490.25
• = 271, 687.35
0 1 2 3 4 5 178 179 180
A A A A A A A A = 20, 000
P = A[(1+i)n - 1]
(1+i)n - (i)
Ordinary Annuity
A A A A A A A = 20, 000
P = A[(1+i)n - 1]
(1+i)n - (i)
Annuity Due
ordinary annuity
P = 20, 000[(1+0.015)180 – 1]
(1+0.015)180 (0.015)
P = 1, 242, 911.246
annuity due
P1 = 20, 000[(1+0.015)179 – 1]
(1+0.015)179 (0.015)
P1 = 1, 240, 539.915
P = P1 + A = 1, 240, 539.915 + 20, 000
P = 1, 260, 539.915
Pann _due - Pord_annuity = difference