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10 General Annuity

The document discusses general annuities, including: - Calculating the present and future value of general annuities - Determining the regular payment amount for general annuities - Formulas for general ordinary annuities, annuities due, and examples of calculations It also provides exercises for calculating annuity values based on given interest rates, payment amounts and time periods.

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ALJON TABUADA
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238 views24 pages

10 General Annuity

The document discusses general annuities, including: - Calculating the present and future value of general annuities - Determining the regular payment amount for general annuities - Formulas for general ordinary annuities, annuities due, and examples of calculations It also provides exercises for calculating annuity values based on given interest rates, payment amounts and time periods.

Uploaded by

ALJON TABUADA
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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General Annuity

General Mathematics
Lesson Objectives
At the end of the lesson, the students must be
able to:
• find the future value and present value of
general annuities;
• determine the amount of general annuity; and
• determine the regular payment (P) of general
annuity.
Amount and Present Value of an Annuity
• The present value of an annuity is the
principal that must be invested today to provide
the regular payments of an annuity.
• The amount of an annuity is the sum of the
regular deposits plus interest.
The given situations involve the amount of an
annuity:
- Resty saves ₱2,000.00 by making equal
monthly payments at his bank.
Amount and Present Value of an Annuity

- Donna plans to retrieve a millionaire by


making equal semi-annual deposits into her
retirement savings plan.
The given situations involve the present value of
an annuity:
- Ellen plans to repay her loan of ₱50,000 by
making equal quarterly payments.
Amount and Present Value of an Annuity

- Samson plans to make equal monthly


withdrawals from his ₱1,000,000 retirement
income fund.
Simple and General Annuities
In simple annuity, the interest conversion
period is equal or the same as the payment
interval.

A general annuity is an annuity wherein the


interest conversion period is unequal or not the
same as the payment interval
General Ordinary Annuity
Present Value of General Ordinary Annuity
1  (1  i ) 
n

PV  P  
(1  i )  1
b

 
Future Value of General Ordinary Annuity

 (1  i )  1
n

FV  P  
 (1  i )  1
b
General Ordinary Annuity
Where:
P = regular payment
i = rate per conversion period
r annual rate
i
K no. of conversion periods in a year

n = number of conversion periods for the whole


termp (n = t · K, where t is the term of an annuity)
b = c where p is the number of months in a
payment interval and c is the number of
months in a compounding period.
Sample 1
Find the present value of an ordinary annuity of
₱2,000 payable annually for 9 years if the money
is worth 5% compounded quarterly.

Solution
Given: P = ₱2,000.00
n = 9 · 4 = 36
r 5% or
i 
0.0125 K 4
Solution for Sample 1
c=3
p = 12
b= p 12
 4
c 3
1  (1  i ) 
n

PV  P  
 (1  i )  1
k
Solution for Sample 1
= 2 000 1  (1  0.0125) 
 36

 (1  0.0125)  1
4
 

= ₱14,155.99
Present Value of General Annuity Due

Present Value of General Annuity Due


1  (1  i )   i 
n

PV  P     i
 i   (1  i )  1 
b

Future Value of General Annuity Due


 (1  i )  1  i 
n

FV  P     i
 i   (1  i )  1 
b
Present Value of General Annuity Due

where:
PV = Present Value
FV = Future Value
P= Annuity Payment
i = rate per compounding period
r annual rate
i
K no. of conversion periods in a year
Present Value of General Annuity Due

n = number of conversion period (n = t · K,


where t is the term of an annuity)
c = number of months in a compounding period
p = number of months in a payment interval
b= p
c
Sample 2
Find the present value of an annuity due of
₱10,000.00 payable quarterly for 10 years if
money is worth 6% compounded semi-annually

Solution for Sample 2


P = ₱10 000.00 c=6
t = 10 years p=3
K=2 p 3 b= or

0.5 c 6
Solution for Sample 2
n = 10(2) = 20
i = r  6% or 0.03
K 2

1  (1  i )   i 
n

PV  P     i
 i   (1  i )  1 
b
Solution for Sample 2
= 10,000 1  (1  0.03)   0.03 
 20

 0.03   (1  0.03)  1  0.03


0.5

  
= 10,000(14.87747486)(2.014889157 + 0.03)
= ₱304 227.87
Regular Payment (P) of General Annuity

For General Annuity


 (1  i ) k  1   (1  i ) k  1 
P  PV  n  P  FV  
1  (1  i ) 
n
 (1  i )  1

b
Sample 3
A couple left their son with a ₱1,000,000.00
insurance policy. What monthly income would
the policy provide for 15 years if the insurance
company pays 8% compounded semi-annually?
Solution for Sample 3
Given:
PV = ₱1,000,000.00 p=1
n = t · K = 15 · 2 = 30 c=6
r 8% or 0.04
i 
K 2

 (1  i ) k  1 
P  PV  n 
1  (1  i ) 
Solution for Sample 3
 
1

(1  0.04)  1 
6

 1000000 
1  (1  0.04) 30 
 
= ₱9,481.53
Exercise A
The present value of an annuity of ₱5,000 every
end of 3 months for 10 years when the interest
rate is 4% compounded annually is ₱164,631.30.
Use the given situation to give the values of the
following variables:
Exercise A
1. P =
6. i =
2. t =
7. c =
3. K =
8. p =
4. n =
9. b =
5. r =
10. PV =
Exercise B
Amy and Susan each makes regular deposits into
an annuity. Amy deposits ₱2,000.00 at the end
of each month at 6% compounded quarterly.
Susan deposits ₱6,000 at the end of each
quarter at 6% compounded monthly. Who will
have the greater amount at the end of 5 years?
Explain using the calculated amount.

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