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Lesson 9 Equivalent Rates and General Annuity

This document provides an overview of general annuities. It defines a general annuity as one where the payment interval is not the same as the interest compounding period. It gives examples of simple and general annuities. The key topics covered include: calculating the future and present value of general annuities using equivalent interest rates; applying the formulas; and working through sample problems to find the future or present value. The document aims to illustrate and distinguish between simple and general annuities, and teach how to calculate their future and present values.

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Geraldine Elisan
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36 views29 pages

Lesson 9 Equivalent Rates and General Annuity

This document provides an overview of general annuities. It defines a general annuity as one where the payment interval is not the same as the interest compounding period. It gives examples of simple and general annuities. The key topics covered include: calculating the future and present value of general annuities using equivalent interest rates; applying the formulas; and working through sample problems to find the future or present value. The document aims to illustrate and distinguish between simple and general annuities, and teach how to calculate their future and present values.

Uploaded by

Geraldine Elisan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Content:

ANNUITIES
(cont. of Compound Interest)
Senior High School
Mass Training of Teachers
On Academic Track
STEM III-A (Mathematics)
Objectives
After this session, you are expected to:
1. illustrate simple and general annuities.
2. distinguish between simple and
general annuities.
3. find the future value and present value
.

of both simple annuities and general


annuities.
DEPARTMENT OF EDUCATION
Review!
 
Review!
• Amount or Future
Value of Annuity F = Compound amount
or sum of an annuity
i (m)
mt
A = Annuity payment
(1  ) 1 ( m)
i
m = Periodic interest
FA m
i (m) rate
m mt = Total
compounding
periods
Review!
• Present Value of
Annuity P = Present Value of
annuity
(m)
i - mt A = Annuity payment
1  (1  )
m
( m)
i
PA m
= Periodic interest
(m)
i rate
m mt = Total
compounding
periods
Equivalent Rates
•  
Equivalent Rates:
•  

DEPARTMENT OF EDUCATION
Review: Equivalent Rates:

DEPARTMENT OF EDUCATION
Activity: By groups of 3
Points Bank: Each entry will be graded
as following:
1st 7 to finish: 5 points
Next 7 to finish: 4 points
The rest: 3 points .

DEPARTMENT OF EDUCATION
Activity: By groups of 3
Convert the following in to its Equivalent Rate:

10% compounded = ___ compounded


quarterly semi-annually
.

DEPARTMENT OF EDUCATION
Two Types of Annuity
Simple or Ordinary Annuity- the payment interval is
the same as the interest period
Ex. Installment payment for appliances at the end
of each month with interest compounded monthly
General Annuity- the payment interval is not
the same as the interest
.
period
Ex. Installment payment for appliances at the
end of each month with interest
compounded annually
DEPARTMENT OF EDUCATION
General Annuity
Lesson Outline:
1) Future value of a General Annuity.
2) Present value of a General Annuity
3) Cash Value of a Cash Flow
.

DEPARTMENT OF EDUCATION
General Annuity
• General Annuity – an annuity where the payment
interval is not the same as the interest compounding
period.
• General Ordinary Annuity – a general annuity in which
the periodic payment is made at the end of the
.
payment interval.

DEPARTMENT OF EDUCATION
Future Value of General Ordinary Annuity
1. Compute for the equivalent rate.

2. Apply the formula for finding the future


value of ordinary annuity.
.

DEPARTMENT OF EDUCATION
Future Value of General Ordinary Annuity

(m)
i mt
(1  ) 1
FA m
(m)
.
i
m
DEPARTMENT OF EDUCATION
Future Value of General Ordinary Annuity
Mel started to deposit P1,200 monthly in a
fund that pays 5% compounded quarterly.
How much will be in the fund after 5 years?

DEPARTMENT OF EDUCATION
Step 1: Compute for the equivalent rate.
5% compounded quarterly= ___ compounded monthly
Step 2. Apply the formula for finding the future value
of ordinary annuity.
Present Value of General Ordinary Annuity
1. Compute for the equivalent rate.

2. Apply the formula for finding the present


value of ordinary annuity.
.

DEPARTMENT OF EDUCATION
Present Value of General Ordinary Annuity

(m)
i - mt
1  (1  )
PA m
(m)
.
i
m
DEPARTMENT OF EDUCATION
Present Value of General Ordinary Annuity
Ken borrowed an amount of money from Kat. He
agrees to pay the principal plus interest by paying
P38,973.76 each year for 3 years. How much money
did he borrow if interest is 8% compounded
quarterly?
.

DEPARTMENT OF EDUCATION
Step 1: Compute for the equivalent rate.
8% compounded quarterly= ___ compounded annually
Step 2. Apply the formula for finding the future value
of ordinary annuity.
Evaluation: 1 whole
1. A teacher saves P4,000 every 6 months in a bank
that pays 0.25% compounded monthly. How much
will be her savings after 5 years?

2. Mrs. Remoto would like .to buy a television set payable


monthly for 6 months starting at the end of the month.
How much is the cost of the TV set if her monthly
payment is P3,500 and interest is 8% compounded semi-
annually?
DEPARTMENT OF EDUCATION

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