Republic of the Philippines

City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

Program: BSED major in Mathematics

Course Code: _____________
Course Title: INVESTMENT OF MATHEMATICS

Course Description:

This will cover the basics of a course in mathematics of investment. It will lead the way as tool in
solving principal, rate, time and interest. Mathematics of Investment has been established so that different
topics such as annuities, perpetuities, amortization, bonds, stocks, credit card, and depreciation are covered.
A combination of traditional materials in mathematics of investments and new ideas that are adapted
to our changing economic needs and economic pressure. Topics progress beginning with simple interest
and simple discount, and leading through the topics on compound interest, annuities, amortization, and
sinking funds, and bond and bond valuation, depreciation, and stocks.

Course Learning Outcomes:

At the end of the course, the students are expected to:

• Illustrate and solve problems involving simple and compound interest, and varying interest
• Determine the classifications of annuities.
• Solve problems involving annuities.
• Prepare loan amortization and sinking schedule
• Discuss the concept and different types of depreciation as well as creating depreciation schedule
• Differentiate stocks from bonds
• Learn how to solve problems involving bonds

MODULE 3: ANNUITY (PART 1)

I. Introduction:

Annuity is the series of payments or deposits made at certain equal time intervals. Some examples
of this are payments for insurance and loan payments. Those payment intervals could be monthly,
quarterly, semi-annually, and annually. The entirety of the time that the payments or deposits are made
is called the term of the annuity.

II. Learning Objectives

At the end of module 3, the students are expected to:

• Get grounded on the basics of annuity

 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

• Understand the differences between the different types of annuity

• Solve problems involving accumulated amount and present value of annuity.
• Be able to understand the real world applications of periodic payments

III. TOPICS AND KEY CONCEPTS

3.1 Classification of Annuities

• According to Length of Payment Interval and Interest Compounding Period
• According to Term
• According to Dates of Payments

3.2 Ordinary Annuity

• Accumulated Amount
• Present Value
• Periodic Payments
• Term of an Annuity

“People always live forever if there is an annuity to be paid them”

- Jane Austen

MMW MODULE 3. NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.
2
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

IV. DISCUSSION

3.1 CLASSIFICATIONS OF ANNUITY

According to Length of Payment Interval and Interest Compounding Period

• Simple Annuity – This is when the payment interval coincides with the compounding period of
interest.
– Example: payment is made every 6 months and interest is compounded semi-
annually
• Complex Annuity – This is when the payment interval does NOT coincide with the compounding
period of interest
– Example: payment is made every 6 months, but interest is compounded
quarterly
According to Term

• Annuity Certain – This is when the term begins and ends on definite dates.
• Perpetuity – This is when the term begins on a definite date but is endless. Hence, perpetual.
• Contingent Annuity – This is when the term begins on a definite date but ends on an uncertain
date which depends on some conditions or contingencies.

According to Dates of Payments

• Ordinary Annuity – Payments are made at the end of each interval

• Annuity Due – Payments are made at the beginning of each interval
• Deferred Annuity – Payments are not made at the end or beginning of each interval, but at a later
time instead.

3.2 ORDINARY ANNUITY

Accumulated Amount of an Ordinary Annuity

The accumulated amount of an ordinary denoted by Ford is the total amount of payments at the end of the
term.

MMW MODULE 3. NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.
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 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

𝑗 𝑚𝑡
𝑅[(1 + 𝑖)𝑛 − 1] 𝑅 [(1 + 𝑚) − 1]
𝑭𝒐𝒓𝒅 = 𝑜𝑟 𝑭𝒐𝒓𝒅 =
𝑖 𝑗
𝑚
Where
R = periodic payment
i = periodic rate( 𝑗 )
𝑚
j = nominal rate
m = conversion period per year
t = time expressed in years
n = total conversion period (𝑚𝑡)

Example:

Joanne bought a Nintendo Switch, which she will pay for monthly in the amount of Php 2,000.00 for 12
months at 5%. Determine the amount of the annuity.

Given:
R = Php 2,000.00 n = 12 j = 0.05 m = 12
Solution:

𝑗 𝑚𝑡
𝑅 [(1 + 𝑚) − 1]
𝑭𝒐𝒓𝒅 =
𝑗
𝑚
12 12
0.05 12(12) 0.05 12(12)
2,000 [(1 + 12 ) − 1] 2,000 [(1 + 12 ) − 1]
𝑭𝒐𝒓𝒅 = =
0.05 0.05
12 12
102.32388
= = 𝑷𝒉𝒑 𝟐𝟒, 𝟓𝟓𝟕. 𝟕𝟑𝟏𝟐
0.00416667

Present Value of an Ordinary Annuity

The present value of an ordinary annuity is the total of the present value of all payments at the beginning
of term of the annuity, denoted by Pord.

MMW MODULE 3. NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.
4
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

𝑗 −𝑚𝑡
𝑅[1 − (1 + 𝑖)−𝑛 ] 𝑅 [1 − (1 + 𝑚) ]
𝑷𝒐𝒓𝒅 = 𝑜𝑟 𝑷𝒐𝒓𝒅 =
𝑖 𝑗
𝑚

Example:

Jerico bought a television which he will pay for in the amount of Php 5,000 every 3 months, payable for
24 months at 3% compounded quarterly. Find the present value of the establishment.

Given:
R = Php 5,000.00 t = 2 years or 24 months j = 0.03 m=4

Solution:
𝑗 −𝑚𝑡
𝑅 [1 − (1 + 𝑚) ]
𝑷𝒐𝒓𝒅 =
𝑗
𝑚

0.03 −4(2)
5,000 [1 − (1 + 4 ) ]
290.122995
𝑷𝒐𝒓𝒅 = = = 𝑷𝒉𝒑 𝟑𝟖, 𝟔𝟖𝟑. 𝟎𝟔𝟔
0.03 0.03
4 4

Periodic Payments of an Ordinary Annuity

The periodic payments of ordinary annuity denoted by R refers to a series of payments that occurs
regularly and continuously over a certain period of time.

If Ford is provided, we compute R by using:

𝑗
𝐹𝑖 𝐹 (𝑚)
𝑹= 𝑜𝑟 𝑹 =
(1 + 𝑖)𝑛 − 1 𝑗 𝑚𝑡
(1 + 𝑚) − 1

If Pord is provided, we compute R by using:

𝑗
𝑃𝑖 𝑃 (𝑚)
𝑹= 𝑜𝑟 𝑹 =
1 − (1 + 𝑖)−𝑛 𝑗 −𝑚𝑡
1 − (1 + 𝑚)

MMW MODULE 3. NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.
5
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

Where
P = present value of an annuity
F = sum or amount of an annuity

Example:
How much should Jonathan pay monthly for 5 years if the present value is Php 65,000 and the interest
rate is 3% compounded monthly?

Given:
Pord = Php 65,000.00 t = 5 years j = 0.03 m = 12

Solution:

𝑗 0.03
𝑃 (𝑚 ) 65,000 ( 12 ) 162.5
𝑹= = = = 𝑷𝒉𝒑 𝟏, 𝟏𝟔𝟕. 𝟗𝟔
𝑗 −𝑚𝑡 0.03 −12(5) 0.139130894
1 − (1 + 𝑚) 1 − (1 + 12 )

Term of an Annuity

Now that we have figured out how to compute for the accumulated value (Ford) and present value (Pord)
of an ordinary annuity, let us now compute for the term (t) and total conversion period (n).

If Ford is provided, we compute t and n by using:

𝑗
𝐹𝑚
𝐹𝑖 𝑙𝑜𝑔 [ 𝑅 + 1]
𝑙𝑜𝑔 [ 𝑅 + 1]
𝒏= 𝑜𝑟 𝒏 =
log [1 + 𝑖] 𝑗
log ⌊1 + 𝑚⌋
𝑛
𝒕=
𝑚

If Pord is provided, we compute t and n by using:

𝑗
𝑃𝑚
𝑃𝑖 −𝑙𝑜𝑔 [1 − 𝑅 ]
−𝑙𝑜𝑔 [1 − 𝑅 ]
𝒏= 𝑜𝑟 𝒏=
log [1 + 𝑖] 𝑗
log ⌊1 + 𝑚⌋

MMW MODULE 3. NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.
6
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

𝑛
𝒕=
𝑚

Sometimes, the computed value for n is not a whole number. This means that t is not enough to complete
the payment. We therefore have to increase the number of payments and compute for a payment, called
concluding payment, which is smaller than the regular payment R.

We solve for the concluding payment by following the steps:

1. Compute for the regular payment one period after the last regular payment:
𝑗 𝑛1
(1 + 𝑚) − 1 − 1]
𝑛
(1 + 𝑖) − 1
1
𝑭𝑹𝒆𝒈 = 𝑅 [ − 1] 𝑜𝑟 𝑭𝑹𝒆𝒈 = 𝑅 [
𝑖 𝑗
𝑚
Where n1 = the whole number greater than n

2. Accumulate the present value (Pord) of the ordinary annuity using the formula for the final amount:
𝑛1
𝑗 𝑛1
(1
𝑭𝑨 = 𝑃𝑜𝑟𝑑 + 𝑖) 𝑜𝑟 𝑭𝑨 = 𝑃𝑜𝑟𝑑 (1 + )
𝑚

3. Subtract FReg from FA. The result is the concluding payment.

concluding payment = FA - FReg

Example:

JC borrows 8,000 with an interest of 5% compounded semi-annually. He will pay for the loan by
depositing 300 every 6 months. Find the (a) number of payments to be made and (b) concluding payment.

Given:
Pord = Php 8,000.00 R = 300 j = 0.05 m=2
Solution:

First, let’s solve for n.

𝑗 0.05
𝑃𝑚 8,000 2
−𝑙𝑜𝑔 [1 − 𝑅 ] −𝑙𝑜𝑔 [1 − 300 ]
𝒏= = = 𝟒𝟒. 𝟒𝟗𝟏𝟓𝟑𝟕
𝑗 0.05
log ⌊1 + 𝑚⌋ log ⌊1 + 2 ⌋

Then, let’s solve for FReg and FA

MMW MODULE 3. NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.
7
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

𝑗 𝑛1 0.05 45
(1 + 𝑚) − 1 (1 + 2 ) − 1
𝑭𝑹𝒆𝒈 =𝑅 [ − 1] = 300 [ − 1] = 𝟐𝟒, 𝟏𝟓𝟒. 𝟖𝟑𝟗𝟑𝟓
𝑗 0.05
𝑚 2

𝑗 𝑛1 0.05 45
𝑭𝑨 = 𝑃𝑜𝑟𝑑 (1 + ) = 8,000 (1 + ) = 𝟐𝟒, 𝟑𝟎𝟑. 𝟐𝟐𝟔𝟐𝟑
𝑚 2

Finally, we compute for the concluding payment:

concluding payment = FA - FReg = 24,303.22623 – 24,154.83935 = 148.38688

SUMMARY OF FORMULAE

Accumulated Amount of an Ordinary Annuity

𝑗 𝑚𝑡
𝑛
𝑅[(1 + 𝑖) − 1] 𝑅 [(1 + 𝑚) − 1]
𝑭𝒐𝒓𝒅 = 𝑜𝑟 𝑭𝒐𝒓𝒅 =
𝑖 𝑗
𝑚

Present Value of an Ordinary Annuity

𝑗 −𝑚𝑡
𝑅[1 − (1 + 𝑖) −𝑛 ] 𝑅 [1 − (1 + 𝑚) ]
𝑷𝒐𝒓𝒅 = 𝑜𝑟 𝑷𝒐𝒓𝒅 =
𝑖 𝑗
𝑚
Periodic Payments of an Ordinary Annuity

If Ford is provided, we compute R by using:

𝑗
𝐹𝑖 𝐹 (𝑚)
𝑹= 𝑜𝑟 𝑹 =
(1 + 𝑖)𝑛 − 1 𝑗 𝑚𝑡
(1 + 𝑚) − 1

If Pord is provided, we compute R by using:

𝑗
𝑃𝑖 𝑃 (𝑚)
𝑹= 𝑜𝑟 𝑹 =
1 − (1 + 𝑖)−𝑛 𝑗 −𝑚𝑡
1 − (1 + 𝑚)
Term of an Annuity

If Ford is provided, we compute t and n by using:

MMW MODULE 3. NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.
8
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

𝑗
𝐹𝑚
𝐹𝑖 𝑙𝑜𝑔 [ 𝑅 + 1]
𝑙𝑜𝑔 [ 𝑅 + 1]
𝒏= 𝑜𝑟 𝒏 =
log [1 + 𝑖] 𝑗
log ⌊1 + 𝑚⌋
𝑛
𝒕=
𝑚

If Pord is provided, we compute t and n by using:

𝑗
𝑃𝑚
𝑃𝑖 −𝑙𝑜𝑔 [1 − 𝑅 ]
−𝑙𝑜𝑔 [1 − 𝑅 ]
𝒏= 𝑜𝑟 𝒏=
log [1 + 𝑖] 𝑗
log ⌊1 + 𝑚⌋
𝑛
𝒕=
𝑚

Concluding Payment

𝑗 𝑛1
(1 + 𝑖) 𝑛1
−1 (1 + 𝑚) − 1
𝑭𝑹𝒆𝒈 = 𝑅 [ − 1] 𝑜𝑟 𝑭𝑹𝒆𝒈 = [ − 1]
𝑖 𝑗
𝑚
Where n1 = the whole number greater than n
𝑛
𝑗 𝑛1
𝑭𝑨 = 𝑃𝑜𝑟𝑑 (1 + 𝑖) 1 𝑜𝑟 𝑭𝑨 = 𝑃𝑜𝑟𝑑 (1 + )
𝑚

Concluding Payment = FA - FReg

TEACHING AND LEARNING MATERIALS/ RESOURCES

Learning Modules
PowerPoint
Video Clips

REFERENCES

MMW MODULE 3. NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.
9
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

Ballada, W., & Ballada, S. (2009). Investment Mathematics Made Easy (3rd ed.). Win Ballada and Susan
Ballada.

Paguio, D. P., Gadia, E. D., Soriano, D. D., Taganap, E. C., & Aniciete, E. B. (2014). Compound Interest.
In E. D. Ibañez (Ed.), Mathematics of Investment. Malabon City, NCR: Jimczyville Publications.

Sirug, W. S. (2018). Mathematics in the Modern World. Manila City, NCR: Mindshapers Co., Inc.

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