Professional Documents
Culture Documents
Sub Topics
I Definition of annuity
II Annuity Formula
III Application of annuity
IV. Problems
I Definition of annuity
II Formula Annuity
Formula Amount of Annuity
n
(1 + i ) – 1
Sn =A
i
Where:
Sn = Amount of annuity
A = periodic payment (usally every month)
i = interest rate (usually per month)
n = number of periods
Sn = A Sni
Where:
n
(1 + I ) – 1
Sni =
i
Example.
If a man puts Rp 20,000 in the bank every month at interest rate 1% per month, find the
total amount of annuity for 4 years.
Answer.
Given A=20,000, i=0.01, n=48
Answer:
48
(1 + 0.01) – 1
Sn =20000
0.01
=20000 x 61.2226078
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=1,224,452.156
Where:
PVn = Present value of annuity
The formula above can be written as follows:
PVn =A PVni
Where:
-n
1- (1 + i )
PVni =
i
Example.
A debt is to be discharged by making equal payments Rp 287.680 at the end of
each month for five years. If the interest rate charged is 2% per month , find the size
of the debt ?
Answer.
Given A=287.680, i=0,02, n=60
-60
1- (1 + 0,02 )
PVn=287680
0,02
=287680 x 34,76089
=10.000.000
A father deposit in a bank Rp 100.000 every month at interest rate 1% per month
for 8 years. Then, he wants his son to withdraw at equal at the end of each month
during his 5 years university course. How much can he withdraw every month?
Answer:
For 8 years can be seen as an amount of annuity.
Given A=100,000, i=0.01, n=96
Answer:
96
(1 + 0.01) – 1
Sn =100000
0.01
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=100000 x 159.9273
=15,992,730
IV Problems
Problem 1
A man deposit Rp 200,000 at the end of each month. At the end of 6 years the
amount of his deposit is 21,786,930. Find the interest rate per month?
Problem 2
A debt Rp 1,000,000 is to be discharged by making equal payments Rp 339,479.9
every month at interest rate 2.5% per month. Find how long time will it take to pay
off the debt?
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Interpolation Method
Related to the formula Sn or PV, suppose we want to find the value of variable i if A,
Sn and PV are given, we can use interpolation method :
(Sni –Sni1)
I = i1 + (i2-i1)
(Sni2 –Sni1)
i1 = the smaller i
i2 = the greater i
Example :
A man deposit at the bank Rp 250,000 at the end of each month. In 5 years the amount of
his deposit will be Rp 21,784,318. Find the interest rate per month?
Answer:
Given :
Sn = 21,784,318
A = 250,000
n = 60
Steps in evaluating i using interpolation method.
Step 1 (Evaluate Sni)
Sni = Sn/A = 21,784,318 /250,000 = 87.137272
Step 2 (To Find position of Sni in the tabel )
Look at the table of Sn, for n=60,we can see i between i=1,125% and 1,25%
So:
I1 = 1.12500%
I2 = 1.25000%
Sni1 = 85.03512704
Sni2 = 88.57450776
(87.137272 – 85.03512704 )
i = 0.01125 + (0.0125 – 0.01125 )
(88.57450776 –85.03512704)
= 0.01199 =1.199%
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For formula PV
(PVni –PVni1)
i = i1 + (i2-i1)
(PVni2 –PVni1)
i1 = the smaller i
i2 = the greater i
Example :
A man has a debt amounts Rp 8 millions at a bank with annuity system for 3 years. A
sequence of payments should be done Rp 347,000 at the end of each month. Find the
interest rate charged?
Answer:
Given :
PV = 8000000
A = 347,000
N = 36
Steps
Steps 1 (Evaluate PVni)
PVni = PV/A = 8 million/347,000 = 23.054755
Step 2 (To find position of PVni in the table )
(Look at table ani, for n=36, we can see i between i=2,5% dan 2,75%.
Jadi:
i1 = 2.5%
i2 = 2.75%
Pvni1 = 23.5562511
PVni2 = 22.6699175
(23.054755 - 23.5562511)
i = 0.025 + (0.0275 – 0.025 )
(22.6699175–23.5562511)
= 0.0264145 =2.64145%
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