1

G e n e r4 aT Hl CMOaFtFhE eE m a ti c s

Simple &
General
Annuities
• Quarter 2 – Module 3
 2
G e n e r4 aT Hl CMOaFtFhE eE m a ti c s

A n a n n u i t y i s a
s e r i e s o f p a y m e n t s
m a d e a t e q u a l
i n t e r v a l s
 Classifica
tion of
3
G e n e r4 aT Hl CMOaFtFhE eE m a ti c s

Annuity
A. According to
payment interval and
interest period
B. According to time of
payment

C. According to duration
 o nF FoE fE A n n u i t y A. According to payment interval and interest 4

period
C l a s s i fi4 cT Ha tiC O

SIMPLE ANNUITY GENERAL ANNUITY

The payment interval is the The payment interval is NOT
same as the interest period. the same as the interest
Example: period.
Example:
A deposit of Php 2000 was made Installment payments are made
at the end of each month to an at the end of each month for a
account that earns 5% interest loan that charges 1.05% interest
 o nF FoE fE A n n u i t y
C l a s s i fi4 cT Ha tiC O B. According to time of payment 5

ORDINARY ANNUITY ANNUITY DUE

The payments are made at the The payments are made at the
end of each payment interval. beginning of each payment
interval.
 o nF FoE fE A n n u i t y C. According to duration 6

Drag and drop

image here
C l a s s i fi4 cT Ha tiC O

ANNUITY CERTAIN CONTINGENT ANNUITY

Payments begin and end at Payments extend over an
definite times. indefinite (or indeterminate)
Example: length of time
Example:
A loan payable of Ph 10 000 at life and accident insurance,
the end of the month for 2 years. pension payments
D e fi n4 Ti Hti CoOnF Fo Ef E T e r m s

Terms:
Definition of
7
 8
D e fi n4 Ti Hti CoOnF Fo Ef E T e r m s

• Annuity - a sequence of payments made

at equal (fixed) interval or periods of time

• Payment interval - the time between

successive payments

• Deferred Annuity - an annuity in which

the periodic payment is not made at the
beginning nor at the end of each payment
interval, but some later date.

• Perpetuities - a series of periodic

payments which are to run infinitely or
forever.
 9
D e fi n4 Ti Hti CoOnF Fo Ef E T e r m s

• Term of an annuity, t - time

between the first payment interval
and last payment interval.

• Regular or Periodic payment, R -

is the amount of each payment

• Amount (Future Value) of an

annuity, F - is the sum of the future
values of all payments to be made
during the entire term of annuity.
 10
D e fi n4 Ti Hti CoOnF Fo Ef E T e r m s

• Present Value of annuity, P is

sum of present values of all
payments to be made during the
entire term of annuity

• Cash Value or Cash Price -

down payment (if there is any)
plus present value of the annuity
 11

Time Diagram for Simple and

Simple Annuity
G e n e r4 aT Hl CMOaFtFhE eE m a ti c s
General Annuity
payments are made at
the end of each year
P and payment F interval is
the same as the
payment R R t e r e s t p e r i oRd
i nR

period 0 1 2 3 n
 12

Time
Future
Diagram
Value of
foranSimple
Ordinary
and
Simple Annuity
G e n e r4 aT Hl CMOaFtFhE eE m a ti c s
General
Annuity
Annuity 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠
𝐹𝑢𝑡𝑢𝑟𝑒𝑉𝑎𝑙𝑢𝑒 𝐹 =𝑅 [
𝑗 ]
( 1+ 𝑗 )𝑛 −1 p a y m e n t s a r e m a d e a t
the end of each year
and payment interval is
t h𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝑟𝑎𝑡𝑒𝑝𝑒𝑟
e s a m e a s𝑝𝑒𝑟𝑖𝑜𝑑
the
𝑟𝑒𝑔𝑢𝑙𝑎𝑟 𝑝𝑎𝑦𝑚𝑒𝑛𝑡 interest period

Present Value of an Ordinary

Annuity 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠

[ ]
−𝑛
1− ( 1+ 𝑗 )
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 𝑃= 𝑅
𝑗
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝑟𝑎𝑡𝑒𝑝𝑒𝑟 𝑝𝑒𝑟𝑖𝑜𝑑
𝑟𝑒𝑔𝑢𝑙𝑎𝑟 𝑝𝑎𝑦𝑚𝑒𝑛𝑡
 13

Large
G e n e r4 aT Hl CMOaFtFhE eE m a ti c s

Photo
SIMPLE
Slide
ANNUITY

Simple Annuity - The payment interval is the same as the

interest period
Simple ORDINARY Annuity - payments are made at the end of
each period and payment interval is the same as the interest
period
 SIMPLE 14

ANNUITY
G e n e r4 aT Hl CMOaFtFhE eE m a ti c s

EXAMPLE:

Assume that you invest 1,000 every year for the next
five years, at 5% interest. What will be the value after
5 years?
 EXAMPLE: 15

Assume that you invest P1,000 every year for the next five years, at 5% interest. What will be
the value after 5 years?

SOLUTI
S i m4 TpH l Ce O AF FnEnE u i t y

ON:
1000 1000 1000 1000 1000

0 1 2 3 4 5
Year 1: 𝑭 =𝟏𝟎𝟎𝟎 (𝟏 +𝟎 . 𝟎𝟓 ) 𝑭 =𝟏𝟐𝟏𝟓 .𝟓𝟏
𝟒

𝑭 =𝟏𝟎𝟎𝟎 (𝟏 +𝟎 . 𝟎𝟓 ) 𝑭 ≈ 𝟏𝟏𝟓𝟕 .𝟔𝟑

𝟑
Year 2:
𝟐
Year 3: 𝑭 =𝟏𝟎𝟎𝟎 (𝟏 +𝟎 . 𝟎𝟓 ) 𝑭 =𝟏𝟏𝟎𝟐 .𝟓
𝟏
Year 4: 𝑭 =𝟏𝟎𝟎𝟎 (𝟏 +𝟎 . 𝟎𝟓 ) 𝑭 =𝟏𝟎𝟓𝟎
𝑭 =𝟏𝟎𝟎𝟎 (𝟏 +𝟎 . 𝟎𝟓 ) 𝑭 =𝟏𝟎𝟎𝟎
𝟎
Year 5:

𝟓𝟓𝟐𝟓 .𝟔𝟑
𝟏𝟐𝟏𝟓 .𝟓+𝟏𝟏𝟓𝟕 . 𝟔+𝟏𝟏𝟎𝟐. 𝟓+𝟏𝟎𝟓𝟎+𝟏𝟎𝟎𝟎=¿
 EXAMPLE: 16

Assume that you invest P1,000 every year for the next five years, at 5% interest. What will be
the value after 5 years?
S i m4 TpH l Ce O AF FnEnE u i t y

𝑻𝒊𝒎𝒆 𝑫𝒊𝒂𝒈𝒓𝒂𝒎
P F
payment 1000 1000 1000 1000 1000

months
0 1 2 3 4 5

𝐹 =(1000) [
(1+ 0.05 )5 −1
0.05 ]
𝑭 =𝟓 , 𝟓𝟐𝟓 . 𝟔𝟑
 17
EXAMPLE:
Mister Roque would like to save Php 3000 at the end of each month
for 6 months in a fund that that gives 9% compounded monthly.
a. Determine the future value.
S i m4 TpH l Ce O AF FnEnE u i t y

b. Determine the present value

P F
payment
3000 3000 3000 3000 3000 3000

period
0 1 2 3 4 5 6
 18
EXAMPLE:
Mister Roque would like to save Php 3000 at the end of each month
for 6 months in a fund that that gives 9% compounded monthly.
a. Determine the future value.
S i m4 TpH l Ce O AF FnEnE u i t y

b. Determine the present value

𝑖( 12)0.09
𝑗= ¿ = 0.0075
𝑚 12

[
( 1+ 0.0075 )6 −1
] [ ]
−6
1− ( 1+0.0075 )
𝐹 =3000 𝑃=3000
0.0075 0.0075

𝐹 =18 , 340.89 𝑃=17 536.79

 𝐶𝐻𝐸𝐶𝐾𝐼𝑁𝐺
20
EXAMPLE:
Mister Roque would like to save Php 3000 at the end of each month
for 6 months in a fund that that gives 9% compounded monthly.
a. Determine the future value.𝐹 =18 , 340.89
S i m4 TpH l Ce O AF FnEnE u i t y

b. Determine the present value

𝑃=17 536.79

𝑷=𝟏𝟕𝟓𝟑𝟔
payment .𝟖 3000 3000 3000 3000 3000
3000
payment

period period 0 01 12 2 3 3 4 4 5 5 6 6
Given: Formula (Monthly
Compounded):

F=?

( )
12 (0.5 )
0.09
𝐹 =17 536.79 1+
12
𝐹 =18 340.89
 EXAMPLE: 21
Mr. Duque paid Php 300,000 as a down payment for a car. The remaining
amount is to be settled by paying Php 20,000 at the end of each month
for 5 years.
If interest is 12% compounded monthly, what is the cash price of his car?
S i m4 TpH l Ce O AF FnEnE u i t y

𝑻𝒊𝒎𝒆 𝑫𝒊𝒂𝒈𝒓𝒂𝒎
P
payment 300 000 20000 20000 20000 20000

period 0 1 2 3 60

𝑃 ≈ 899 , 100.76
0.12
𝑗= =0.01
12

[ ]
− 60
1− ( 1+0.01 )
𝑃 = 20 000
0.01
 EXAMPLE: 22
Mr. Duque paid Php 300,000 as a down payment for a car. The remaining
amount is to be settled by paying Php 20,000 at the end of each month
for 5 years.
If interest is 12% compounded monthly, what is the cash price of his car?
S i m4 TpH l Ce O AF FnEnE u i t y

𝑻𝒊𝒎𝒆 𝑫𝒊𝒂𝒈𝒓𝒂𝒎
P
payment 300 000 20000 20000 20000 20000

period 0 1 2 3 60

𝑃 ≈ 899 , 100.76
0.12
𝑗= =0.01
12

[ ]
− 60
1− ( 1+0.01 )
𝑃 = 20 000
0.01
 EXAMPLE: 23
Mr. Duque paid Php 300,000 as a down payment for a car. The remaining
amount is to be settled by paying Php 20,000 at the end of each month
for 5 years.
If interest is 12% compounded monthly, what is the cash price of his car?
S i m4 TpH l Ce O AF FnEnE u i t y

𝑻𝒊𝒎𝒆 𝑫𝒊𝒂𝒈𝒓𝒂𝒎
P
payment 300 000 20000 20000 20000 20000

period 0 1 2 3 60

𝐶𝑎𝑠h 𝑃𝑟𝑖𝑐𝑒=𝐷𝑜𝑤𝑛𝑝𝑎𝑦𝑚𝑒𝑛𝑡+𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒

𝐶𝑎𝑠h 𝑃𝑟𝑖𝑐𝑒=300 , 000+899 , 100.8
𝑃=899 , 100.76
𝐶𝑎𝑠h 𝑃𝑟𝑖𝑐𝑒=1 ,199 ,100.76
 24

Large
G e n e r4 aT Hl CMOaFtFhE eE m a ti c s

Photo
GENERAL
Slide
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
 25
EXAMPLE:
Taylor barrowed an amount of money from Joe. She agrees to pay the
principal plus interest of 8% compounded quarterly by paying Php 38 973. 76 each
year for 3 years.
G e n4 eT Hr aC Ol FAF nE En u i t y

a) Find the future amount of this annuity.

b) Determine the money barrowed by Taylor (or the present value of the annuity).

3 38 973. 76 38 973. 76 38 973. 76

0 1 2 3

CAUTION! Since this is a General Ordinary Annuity, note

that . The interest rate of 8% compounded quarterly must
be converted to its equivalent interest rate that is
compounded annually because the payments are done
𝐹 =? yearly
𝑃=?
𝑗 =?
 26
EXAMPLE:
Taylor barrowed an amount of money from Joe. She agrees to pay the
principal plus interest of 8% compounded quarterly by paying Php 38 973. 76 each
year for 3 years.
G e n4 eT Hr aC Ol FAF nE En u i t y

a) Find the future amount of this annuity.

b) Determine the money barrowed by Taylor (or the present value of the annuity).

How to convert?
3.76 𝑆𝑡𝑒𝑝 1: 𝐹 1=𝐹 2 , 𝐹 = 𝑃 ( 1+𝑖 )𝑡

( ) ( )
(1)(𝑡 ) (4)(𝑡 )
𝑖(1) 𝑖(4 )
𝑆𝑡𝑒𝑝 2 : 𝑃 1+ = 𝑃 1+
1 4
1
( ) ( ) 𝐷𝑖𝑣𝑖𝑑𝑒 𝑏𝑜𝑡h 𝑠𝑖𝑑𝑒𝑠 𝑏𝑦 𝑃
(1 )(𝑡 )
𝑖(1 ) 0.08
(4 )(𝑡 )
𝑅𝑎𝑖𝑠𝑒 𝑏𝑜𝑡h 𝑠𝑖𝑑𝑒𝑠 𝑏𝑦
𝑆𝑡𝑒𝑝 3 : 𝑃 1+ = 𝑃 1+ 𝑡
1 4

𝑆𝑡𝑒𝑝 4 : ( 1+
1 )
( 1)
𝑖
( 4 )
4
( 1) 0.08
= 1+
𝐹 =?
𝑃=? 𝑖 (1 ) 4
𝑆𝑡𝑒𝑝 5 : 1 + = ( 1.02 )
𝑖(1 )=? 𝑖( 1 ) 1
4
𝑆𝑡𝑒𝑝 6 : =( 1.02 ) − 1=𝟎 . 𝟎𝟖𝟐𝟒𝟑𝟐𝟏𝟔
1
 27
EXAMPLE:
Taylor barrowed an amount of money from Joe. She agrees to pay the
principal plus interest of 8% compounded quarterly by paying Php 38 973. 76 each
year for 3 years.
G e n4 eT Hr aC Ol FAF nE En u i t y

a) Find the future amount of this annuity.

b) Determine the money barrowed by Taylor (or the present value of the annuity).

How to convert?
3
( )
𝒄
𝒊
𝒋= 𝟏 + −𝟏
𝒎
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑜𝑚𝑝𝑜𝑢𝑛𝑑𝑖𝑛𝑔𝑝𝑒𝑟𝑖𝑜𝑑𝑠𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝑐=
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠 𝒑𝒆𝒓 𝒚𝒆𝒂𝒓
4
𝑐= = 4
1
𝐹 =?
( ) −𝟏¿𝟎.𝟎𝟖𝟐𝟒𝟑𝟐𝟏𝟔
𝟒

( )
𝟒
𝟎 . 𝟎𝟖 𝟎 . 𝟎𝟖
𝑃=? 𝒋= 𝟏 + −𝟏 ¿ 𝟏+
𝟒 𝟒
𝑖(1 )=?
 28
EXAMPLE:
Taylor barrowed an amount of money from Joe. She agrees to pay the
principal plus interest of 8% compounded quarterly by paying Php 38 973. 76 each
year for 3 years.
G e n4 eT Hr aC Ol FAF nE En u i t y

a) Find the future amount of this annuity.

b) Determine the money barrowed by Taylor (or the present value of the annuity).

payment 38 973. 76 38 973. 76 38 973. 76

3
year
0 1 2 3
𝑖( 1 )
=𝟎 . 𝟎𝟖𝟐𝟒𝟑𝟐𝟏𝟔
1

𝐹 =?
𝑃=?
𝑖( 1)
𝑗=
1 ¿𝟎.𝟎𝟖𝟐𝟒𝟑𝟐𝟏𝟔
 29
EXAMPLE:
Taylor barrowed an amount of money from Joe. She agrees to pay the
principal plus interest of 8% compounded quarterly by paying Php 38 973. 76 each
year for 3 years.
G e n4 eT Hr aC Ol FAF nE En u i t y

a) Find the future amount of this annuity.

b) Determine the money barrowed by Taylor (or the present value of the annuity).

payment 38 973. 76 38 973. 76 38 973. 76

3
year
0 1 2 3
𝑖( 1 )
=𝟎 . 𝟎𝟖𝟐𝟒𝟑𝟐𝟏𝟔
1

𝐹 =? 𝑖( 1)
𝑗=
𝑃=? 1 ¿𝟎.𝟎𝟖𝟐𝟒𝟑𝟐𝟏𝟔
 30
EXAMPLE:
Teacher Briones saves Php 5, 000 every 6 months in a bank that
pays 0.25%
G e n4 eT Hr aC Ol FAF nE En u i t y

compounded monthly. How much will be her savings after 10

years?
𝑻𝒊𝒎𝒆 𝑫𝒊𝒂𝒈𝒓𝒂𝒎
P
payment 5000 5000 5000 5000 5000 5000

period 0 1 2 3 4 5 20

CAUTION! Since this is a General Ordinary Annuity, note

that . The interest rate of 0.25% compounded monthly must
be converted to its equivalent interest rate that is

m2
compounded semi-annually because the payments are done
every 6 months

𝐹 =? 𝑗 =?
 31
EXAMPLE:
Teacher Briones saves Php 5, 000 every 6 months in a bank that
pays 0.25%
n4eTpHrlaCelO AFAFnnEnnE uuiittyy

compounded monthly. How much will be her savings after 10

years?

How to convert?

𝑆𝑡𝑒𝑝 1: 𝐹 1=𝐹 2 , 𝐹 = 𝑃 ( 1+𝑖 )𝑡

( ) ( )
(2 )(𝑡 ) (12)(𝑡 )
𝑖(2) 𝑖(12)
𝑆𝑡𝑒𝑝 2 : 𝑃 1+ = 𝑃 1+
2 12
1
( ) (
(2)(𝑡 )
𝑖(2)
) 𝐷𝑖𝑣𝑖𝑑𝑒 𝑏𝑜𝑡h 𝑠𝑖𝑑𝑒𝑠 𝑏𝑦 𝑃
(12)(𝑡)
0.0025 𝑅𝑎𝑖𝑠𝑒 𝑏𝑜𝑡h 𝑠𝑖𝑑𝑒𝑠𝑏𝑦
GSei m

𝑆𝑡𝑒𝑝 3 : 𝑃 1+ =𝑃 1+ 2𝑡
2 12

𝑆𝑡𝑒𝑝 4 : ( 1+
2 ) (
𝑖
m2 12 )
6
(2) 0.0025
= 1+
𝑖 (2 ) 6
𝑆𝑡𝑒𝑝 5 : 1 + =( 1.000208333 )
𝐹 =? 2
𝑖( 2 ) 6
𝑆𝑡𝑒𝑝 6 : =( 1.000208333 ) − 1=𝟎 . 𝟎𝟎𝟏𝟐𝟓𝟎𝟔𝟑
2
 32
EXAMPLE:
Teacher Briones saves Php 5, 000 every 6 months in a bank that
pays 0.25%
n4eTpHrlaCelO AFAFnnEnnE uuiittyy

compounded monthly. How much will be her savings after 10

How to convert?
years?

( )
𝒄
𝒊
𝒋= 𝟏 +
How to convert? −𝟏
𝒎𝟏
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑜𝑚𝑝𝑜𝑢𝑛𝑑𝑖𝑛𝑔𝑝𝑒𝑟𝑖𝑜𝑑𝑠𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝑐=
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠 𝒑𝒆𝒓 𝒚𝒆𝒂𝒓
𝑚1 12
GSei m

𝑐= 𝑐= =6
𝑚2 2

m2
( ) −𝟏¿ 𝟎.𝟎𝟎𝟏𝟐𝟓𝟎𝟔𝟓𝟏𝟐𝟐
𝟔
𝟎 . 𝟎𝟎𝟐𝟓
𝒋= 𝟏 +
𝟏𝟐
𝐹 =?
 33
EXAMPLE:
Teacher Briones saves Php 5, 000 every 6 months in a bank that
pays 0.25%
G e n4 eT Hr aC Ol FAF nE En u i t y

compounded monthly. How much will be her savings after 10

years?
𝑻𝒊𝒎𝒆 𝑫𝒊𝒂𝒈𝒓𝒂𝒎
P
payment 5000 5000 5000 5000 5000 5000

period 0 1 2 3 4 5 20
𝒊( 𝟐)
=𝟎 . 𝟎𝟎𝟏𝟐𝟓𝟎𝟔𝟑
𝟐

m2 𝐹 ≈ 1 01,197. 0 613
𝐹 =? 𝑗=
𝑖( 2)
2 ¿𝟎.𝟎𝟎𝟏𝟐𝟓𝟎𝟔𝟑
G e n e r4 aT Hl CMOaFtFhE eE m a ti c s

T H A N K YO U
34
6) Payments are made at the end of each month for a loan that
charges 1.0% interest compounded quarterly.

7) A deposit of Php 5 500 was made at the end of every six

months to an account that earns 5.6% interest per year
compounded semi-annually.

8) Deposits are made every 5 months for ten years at 6% per

year compounded semi-annually.

9) A deposit of of Php 200 every year for 15 years at 10% per

year compounded annually.

10) A payment of Php 5 every day for 3 years at 8% per year

compounded daily.
Write your name on every page.
For A: Answer Only
For B: Show complete solution(Given,formula,time diagram,solution,answer)
 Quiz:
38

1) Kay’s parents begin making a monthly payments of Php

1 500 into an account paying 4.2% compounded monthly.
Payments begin after her 10th birthday.
4TH COFFEE

• How much will be their savings on her 15th birthday?

2) Kay’s parents begin making a monthly payments of Php

1 500 into an account paying 4.2% compounded
quarterly. Payments begin after her 10th birthday.
• How much will be their savings on her 15th birthday?
1. By the conditions of a will, the sum P25, 000 is left to a girl
to be held in trust by her guardian until it amounts to
P45,000. When will the girl receive the money if the fund is
invested at 8% compounded quarterly?

2. At a certain interest rate compounded semiannually ,

P5,000 will amount to P20,000 after 10 years. What is the
amount at the end of 15 years?