Chapter 2

Simple and General Annuities

Content Standards

➢ The learner demonstrates understanding of key concepts of simple and general annuities

Performance Standards

The learner is able to,

➢ Investigate, analyze and solve problems involving simple and general annuities

Learning Competencies

The learner,

➢ Illustrates simple and general annuities

➢ Distinguishes between simple and general annuities

➢ Computes interest, maturity value, future value, and present value in simple and general annuities
environment.

➢ Solves problems involving simple and general annuities

Simple Annuity vs General Annuity

Annuities
Simple Annuity - an annuity General Annuity – an annuity
According to payment interval
where the payment interval is the where the payment interval is not
and interest period
same as the interest period the same as the interest period
Ordinary Annuity – a type of Annuity Due – a type of annuity in
annuity in which the payments are which the payments are made at
According to time of payment
made at the end of each payment beginning of each payment interval
interval
Annuity certain - an annuity in Contingent Annuity – an annuity
which payments begin and end at in which the payments extend over
According to duration
definite times indefinite or indeterminate length
of time.

Definition of Terms

Annuity - a sequence of payments made at equal (or fixed) intervals or period of time
Payment Interval – the time between successive payments
Term of annuity (t) – time between the first and last payment
Regular or Periodic payment (R) – the amount of each payment
Future Value - sum of future values of all payments to be made during the full term
Present Value (P) – sum of present values of all the payments to be made during the full term.

Formulas
Future Value of Simple Present Value of Simple Periodic Payment, R
Ordinary Annuity, F Ordinary Annuity, P

(𝟏 + 𝒊)𝒏 − 𝟏 𝟏 − (𝟏 + 𝒊)−𝒏 𝑭
𝑭=𝑹 𝑷=𝑹 𝑹=
𝒊 𝒊 (𝟏 + 𝒊)𝒏 − 𝟏
𝒊
𝒓 𝒓
𝒊= 𝒊= 𝑭
𝒎 𝒎 𝑹=
𝟏 − (𝟏 + 𝒊)−𝒏
𝒊
𝒓
𝒊=
𝒎
Where F is the future value
P is the present value
R is the regular payment
i is the interest rate per period
n is the number of payments
r is the nominal rate
m is the number of conversion periods
Sample Problem

1. Suppose Mrs. Remoto would like to save P3,000.00 every month in a fund that gives 9% compounded
monthly. How much is the amount of the future value of her savings after 6 months?
Given: R = P3,000.00 r = 9% = 0.09 t = 6 months or .5 year m = 12 months
n = mt = 12 months x 0.5=6 i = r/m = 0.09/12
(𝟏+𝒊)𝒏 −𝟏
Formula: 𝑭 = 𝑹 𝒊

2. In order to save for her high school graduation, Marie decided to save P200.00 at the end of each
payment. If the bank pays 0.25% compounded monthly, how much will her money be at the end of 6
years?
Given: R = P200.00 r = 0.25% = 0.0025 t = 6 years m = 12
n = mt = 12(6) = 72 I = r/m = 0.0025/12
(𝟏+𝒊)𝒏 −𝟏
Formula: 𝑭 = 𝑹 𝒊

3. Rose works very hard because she wants to have enough money in her retirement account when she
reaches the age 60. She wants to withdraw P36,000.00 every 3 months for 20 years starting months after
she retires. How much must Rose deposit at retirement at 12% per year compounded quarterly for the
annuity?
Given: R = P36,000 r = 12% = 0.12 t = 20 years m=4
n = tm = 20(4) = 80 i = r/m = 0.12/4 = 0.03
𝟏−(𝟏+𝒊)−𝒏
Formula: 𝑷 = 𝑹 𝒊
 Quarter 2
Class #
Written Work #F2

Name: _____________________________________________ Score: __________________

Read carefully the following questions. Solve what is asked on the problem. Show your complete solution and box the final
answer with red-ink pen. Erasures are not allowed.

1. Find the future value of PHP 4,000 ordinary annuity payable every quarter for 10 years, if the money is
worth 12% compounded quarterly.

2. Find the present value of PHP 4,000 ordinary annuity payable every quarter for 10 years, if the money is
worth 12% compounded quarterly.

3. Patricia deposited PHP 1,000 at the end of each six months for 3 years. The interest rate of 15% is paid
semi-annually. How much will the future value of the account be?