GMTC 1304 Q2 FPF

Lesson 4
Deferred Annuity
Objectives
At the end of this lesson, the learner should be able to
● accurately define deferred annuity and period of deferral;
● correctly calculate the period of deferral of a deferred annuity;
● correctly solve the present value of a deferred annuity; and
● correctly find the number of periodic payments given the

present value of a deferred annuity.
Essential Questions
● What is a deferred annuity?
● How does a deferred annuity compare with an ordinary

annuity?
● How can you find the present value and period of deferral
of a deferred annuity?
Warm Up!
The following activity will illustrate deferred annuity using an

investment problem and how to compute for its present
value using the formula for present value of ordinary annuity.
Warm Up!
Suppose you are considering an investment that will allow you to claim
₱20 000 every year for 5 years beginning on 2022 with a 5% interest
rate compounded annually. How much should you pay at present year
2019 for this investment?

The associated time diagram is
Warm Up!
1. To help you answer this question, assume that you also have claims in
years 2020 and 2021.
2. Compute for the present value of ordinary annuity from 2020 to 2026
using the online calculator at
https://www.mathportal.org/calculators/financial-calculators/annuity-calc
ulator.php
. Choose initial deposit as the unknown and fill in the missing fields.
3. Then, compute for the present value of ordinary annuity from 2020 to
2021.
4. Afterward, subtract your answer in No. 3 from your answer in No. 2. The
obtained difference is the answer to the problem.
Guide Questions
● How much should you pay at present year 2019 for the
investment?
● Based on the time diagram, how does this type of annuity

compare with ordinary annuity?
● Suppose the investment will allow you to claim ₱20 000

beginning 2020. How does the present value of this annuity
compare with that which will begin in 2022?
● What type of annuity is illustrated in the exercise?

Learn about It!
Deferred annuity
1 an annuity in which the first payment interval is delayed or deferred for a period
of time
In a deferred annuity, the time interval to the beginning of the first payment
interval is called period of deferral.
Example:
‘A loan with an interest rate of 7% and a quarterly payment of

₱5 000 for 3 years starting at the end of 1 year’ is an example of a
deferred annuity since the phrase starting at the end of 1 year
indicates that the payment started on a later date.
Learn about It!
Deferred annuity
of time
interval is called period of deferral
Example:
At the end of 1 year will be at time 4 if one quarter is considered as

one period. Hence, the period of deferral is from time 0 to time 3
which is equivalent to 3 quarters.
Learn about It!
Present value of a deferred annuity ()

2 the sum of the present value of the payments given by the following formula:

Learn about It!
Example: To find the present value of annuity using the

same problem in the previous example,
1. Determine the given information.

Learn about It!
2. Substitute the given values in the formula.

Learn about It!
Thus, the present value of the deferred annuity is

₱50 974.48.
Try It!
Example 1: Find the present value of a deferred annuity of

₱600 every three months for 6 years that is deferred for 4
years, if money is worth 8% compounded quarterly.
Try It!
Example 1: Find the present value of a deferred annuity of ₱600 every three months for 6
years that is deferred for 4 years, if money is worth 8% compounded quarterly.
Solution:
1. Determine the number of deferred payments .

To do so, multiply the number of deferred years by .
That is,
Try It!
Solution:
2. Determine the other given information.
Try It!
Solution:
Try It!
Solution:
Try It!
Solution:
₱8 266.66.
Try It!
Example 2: Find the present value of a deferred annuity of

₱6 300 every six months for 10 years, if the first payment is
made in 5 years, and money is worth 10% compounded
semiannually.
Try It!
Example 2: Find the present value of a deferred annuity of ₱6 300 every six months for 10
years, if the first payment is made in 5 years, and money is worth 10% compounded
semiannually.
Solution:
1. Determine the number of deferred payments .

To do so, multiply the number of deferred years by and
subtract 1 since the first payment immediately starts at
the end of the period of deferral.
Try It!
semiannually.
Solution:
2. Determine the other given information.
Try It!
semiannually.
Solution:
Try It!
semiannually.
Solution:
Try It!
semiannually.
Solution:
₱50 609.49.
Let’s Practice!
Individual Practice:
1. If money is worth 12% compounded quarterly, find the present

value of a deferred annuity of ₱20 000 every three months for
4 years that is deferred for 2 years.
2. Find the present value of a deferred annuity of ₱42 500 every

six months for 8 years, if the first payment is made after 3
years, and money is worth 10% compounded semiannually.
Let’s Practice!
Group Practice: Form 6 groups of students.
Mae purchased a television set worth ₱30 000 with an option

to pay at 8% compounded quarterly. How much is the series
of equal payments if the first payment is due at the end of 1
year and the last at the end of 2 years?
Key Points
Deferred annuity
of time
interval is called period of deferral.
Key Points
Present value of a deferred annuity ()

2 the sum of the present value of the payments given by the following formula:

Synthesis
● How are you going to find the present value and period of
deferral of a deferred annuity?
● What difficulties did you encounter while solving problems

involving deferred annuity? How did you overcome them?
● How do annuities compare with other types of

investments such as stocks and bonds?

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Lesson 4

At the end of this lesson, the learner should be able to

● accurately define deferred annuity and period of deferral;

● correctly calculate the period of deferral of a deferred annuity;

● correctly solve the present value of a deferred annuity; and

● correctly find the number of periodic payments given the

● What is a deferred annuity?

● How does a deferred annuity compare with an ordinary

The following activity will illustrate deferred annuity using an

● Based on the time diagram, how does this type of annuity

● Suppose the investment will allow you to claim ₱20 000

● What type of annuity is illustrated in the exercise?

‘A loan with an interest rate of 7% and a quarterly payment of

At the end of 1 year will be at time 4 if one quarter is considered as

Present value of a deferred annuity ()

Example: To find the present value of annuity using the

1. Determine the given information.

2. Substitute the given values in the formula.

2. Substitute the given values in the formula.

Thus, the present value of the deferred annuity is

Example 1: Find the present value of a deferred annuity of

Example 2: Find the present value of a deferred annuity of

1. If money is worth 12% compounded quarterly, find the present

2. Find the present value of a deferred annuity of ₱42 500 every

Group Practice: Form 6 groups of students.

Mae purchased a television set worth ₱30 000 with an option

Present value of a deferred annuity ()

● What difficulties did you encounter while solving problems

● How do annuities compare with other types of

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