Time Value of Money related to CAP Education Plan Options

In a recent post from pinoymoneytalk.com, a member of the forum holding an education plan ECU-A from CAP (College Assurance Plan) was offered the following options for her plan:

Option 1: Tuition Fee Reimbursement
  • Maximum reimbursement per semester = P19,759
  • Total receivable amount for 4 college years = P158,072
  • Check release takes 1-2 months processing
Option 2: Plan Surrender
  • Check release every 3 months = P7,778
  • Total of 20 payments for 5 years
  • Total Receivable amount for 5 years = P155,560
In addition to the analysis presented by James of Pinoymoneytalk.com, I'd like to present additional information that might help you decide as well.

These options can actually be considered as an annuity or a series of payments that you would receive in regular intervals. Computing for the present value of this annuity using the Time value of money will allow you to compare the amounts as if you have them in your hands at this very moment.

The present value of an annuity is computed using the following formulas:

where PVA = Present Value of an Annuity
PMT = The payments received
PVIFA = Present Value interest Factor for an annuity
i or K = Interest rate
n = number of periods

Using these equations to the different options, assuming a 5% interest rate, we would actually get a present value of 153,717 for Option 1 (assuming the maximum amount of 19,759 is received) and a present value of 151,550 for Option 2. In order for the present values to be equal, Option 1's payments must equal to 19,480 pesos.

What does this mean?

This means that you only have a small margin of around 279 pesos (19759 - 19480) for both options to be equal in value. Therefore, if you're not sure how much the college tuition will be, I think it would be wiser to choose Option 2. This holds true specially if the beneficiary is not scheduled to enter college in the near future.


An interest rate of 5% per annum is quite reasonable as investors can currently avail of time deposits at this rate. The higher the interest rate, the smaller the margin becomes. Let's say you can invest your money in an instrument earning 10% per annum, the margin would be lessened to 245 pesos.


Computation guidelines / data:

Option 1:
PMT = 19.759
i = 0.05 / 8
n = 8
PVIFA = 7.568

Option 2:
PMT = 7,778
i = 0.05 / 20
n = 20
PVIFA = 18.987

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