INSET-2024-demo teaching deffered annuity

Deffered annuity

1. DEMO TEACHING Prepared by: Desiree H. Lebrero Elizer N. Pedroso Jonylle Ira D. Vergara John Mark A. Aungon Eden G. Aniversario Renante M. Pandato Asmina D. Ayunan Joel Bernard V. Capada INSET 2024

2. ACTIVITY 1: Determine if the following statements are simple or general annuities Payments are made at the beginning of the payment intervals, and the payment and compounding frequencies are unequal. The first payment occurs not on the same date as the beginning of the annuity. The last payment occurs one payment interval before the end of the annuity. Payments are made at the beginning of the payment intervals, and the payment and compounding frequencies are equal. The first payment occurs on the same date as the beginning of the annuity. GENERAL GENERAL GENERAL SIMPLE SIMPLE

3. ACTIVITY 2: Find the DEFERrence ! Consider the scenario below. Identify the difference between the two options given.  Option B: She invests 1,000 at the end of each year for the next 20 years, earning an annual interest rate of 6%. The payments start at the end of each year. Scenario: Maria is considering two different investment options for her retirement savings: Option A: She invests 1,000 at the beginning of each year for the next 20 years, earning an annual interest rate of 6%. The payments start at the beginning of each year.

4. Option B (End of Each Year): This represents an ordinary annuity because payments are made at the end of each year, which is the typical scenario for ordinary annuities where payments start at the end of the period. Option A (Beginning of Each Year): This represents an annuity due because payments are made at the beginning of each year, starting immediately. Solution:

5. ACTIVITY 3 : Planning for Retirement Alex has been working for 20 years and has accumulated some savings in a 401(k) and a Roth IRA. However, Alex is concerned about having enough steady income during retirement, which is still 20 years away. He’s heard about various investment options and is particularly interested in something that can provide a reliable income stream when he retires. If you are his financial advisor, what explore options can you advise to him?

6. At the end of the lesson, the students will be able to: a. Define p roperly deferred annuity and period of deferral ; and b. Calculate accurately the present value and period of deferral of a deferred annuity. OBJECTIVES

7. In this topic, the lesson shall be started by conducting a review of the basic concepts of simple and compound interest, and simple and general annuity. Introduce key components of deferred annuity. Present examples of methods of how to calculate deferred annuities and deepen their comprehensive understanding of how these financial products work and how they can be applied to real-life financial planning scenarios. OVERVIEW

8. WHAT IS DEFERRED ANNUITY? refers to the delayed annuity in the form of installment or lump-sum payments rather than an immediate stream of income. It is basically the present value of the future annuity payment.

9. TWO STAGES OF DEFERRED ANNUITY Accumulation Stage . A single payment is allowed to earn interest for a specified duration. There are no annuity payments during this period of time, which is commonly referred to as the  PERIOD OF DEFERRAL . Payments Stage . The annuity takes the form of any of the four annuity types and starts at the beginning of this stage as per the financial contract. Note that the maturity value of the accumulation stage is the same as the principal for the payments stage. FORMULA K=mt-1

10. ILLUSTRATION

11. Semi-annual payments of P60,000 for 10 years that will start 5 years from now. ANSWER: 9 periods or 9 semi- annual intervals 2. Annual payments of P8, 000 for 12 years that will start 5 years from now. ANSWER: 4 periods or 4 years 3. Quarterly payments of P5, 5000 for 8 years that will start two years from now. ANSWER: 7 periods or 7 quarters. PERIOD OF DEFERRAL FORMULA K=mt-1 Examples: Find the period of deferral in each of the following deferred annuity problems.

12. EXAMPLE 1. Making an Investment If you invested $5,000 for 10 years at 9% compounded quarterly, how much money would you have? What is the interest earned during the term? The timeline for the investment is below.

13. Solution After 10 years, the principal grows to $12,175.94, which includes your $5,000 principal and $7,175.94 of compound interest.

14. Find the future value if $53,000 is invested at 6% compounded monthly for 4 years and 3 months. EXAMPLE 2. SOLUTION:

15. EXAMPLE 3

16. PRACTICE 1. Find the period of deferral in each of the following deferred annuity problems. Monthly payments of P2,000 for 5 years that will start 7 months from now. Annual payments of P8,000 for 12 years that will start 5 years from now. Quarterly payments of P5,000 for 8 years that will start two years from now. 6 periods or 6 months 7periods or 7 quarters 4 periods or 4 years

17. PRACTICE 2. Two years ago Lorelei placed $2,000 into an investment earning 6% compounded monthly. Today she makes a deposit to the investment in the amount of $1,500. What is the maturity value of her investment three years from now?

18. SOLUTION: STEP 1. First line segment: GIVEN: PV 1  = $2,000; I/Y = 6%; C/Y = 12; Years = 2 i = 0.5 % n = C /Y×(Number of Years) = 24 Find FV 1 =$2,254.319552 + $1,500 = $3,754.319552   STEP 2. Second line segment: PV2 = FV1 = 3,754.319552; I/Y = 6%; C/Y = 12; Years = 3 =   Three years from now Lorelei will have $4,492.72. This represents $3,500 of principal and $992.72 of compound interest.

19. Direction: Read each scenario carefully and describe if it is a Deferred Annuity (Yes) or not (NO) and explain. PRACTICE 3. Scenario 1: John is 45 years old and decides to invest in a financial product that will start providing him with monthly income payments when he turns 65. He makes regular contributions to this product over the next 20 years. The value of his investment grows tax-deferred until he begins receiving payments at age 65. Does this scenario describe a Deferred Annuity? - YES-

20.   Emily invests in a financial product that immediately starts paying her a fixed monthly income one month after her initial investment. She uses this income to supplement her current salary. Scenario 2: Does this scenario describe a Deferred Annuity? - NO- Mark purchases a financial product where he deposits a lump sum today. He can choose to start receiving annual payments after a 10-year accumulation period. During the accumulation period, his investment grows tax-deferred. Mark plans to use these payments to fund his retirement. Scenario 3: Does this scenario describe a Deferred Annuity? - YES -

21. SYNTHESIS An inflation graph with a warning symbol - What difficulties did you encounter while solving problems involving deferred annuity? How did you overcome them? 2. Give an example of a real-world situation that illustrates deferred annuity. Dollar What distinguishes a deferred annuity from an immediate annuity, and how does this difference impact an investor's financial planning? Clock -  What is a deferred annuity? How about the period of deferral?  2. How are you going to find the present value and period of deferral of a deferred annuity? DIRECTION : Choose one financial icon and share your understanding from the topic

22. RUA of a Student’s Learning: Make a scenario demonstrating their ability to apply theoretical knowledge to practical financial scenarios in an engaging and immersive environment. To ensure students can recall, comprehend and apply their knowledge to the concepts of deferred annuity in innovative and engaging ways, they can use the any of the following:

23. Option A : Create a 60-second TikTok video explaining key terms (present value, future value, deferral period, etc.) and calculating present value and period of deferral. Option B : Record a podcast episode where the discussion will revolve from the following concepts: -Differences between deferred and immediate annuities. -Impact of the deferral period on growth. -Personal insights on how they might use deferred annuities in their financial planning. Option C : Use VR platforms (like VR Classrooms) to create a simulation where teachers/participants navigate different financial planning scenarios, including calculating the present value of deferred annuities. Teachers/Participants must interact with virtual financial advisors, input data, and make calculations to achieve specific financial goals.