General

Mathematics
Week 6

Ms. Mary-Ann D. Tabutol

L E S S O N 4
 OBJECTIVES

After the lesson, you are expected to;

• illustrates simple and general annuities,
• distinguishes between simple and general annuities,
• finds the future value and present value of both simple
annuities and general annuities,
• calculates the fair market value of a cash flow stream that
includes an annuity; and
• calculates the present value and period of deferral of a
deferred annuity.
 STARTING POINT

According to… Annuity

Simple Annuity – an annuity General Annuity – an
Payment Interval and where the payment interval annuity where the payment
Interest Period and interest period are the interval and interest period
same. are not the same.
Ordinary Annuity – an Annuity Due – an annuity
annuity which the payments which the payments are
Time of Payment are made at the end of each made at the beginning of
payment interval. each payment interval.

Annuity Certain – an Contingent Annuity – an

Duration annuity in which payments annuity in which payments
begin and end at definite extends over for in
times. indefinite time.
STARTING Determine if the given problem represents simple annuity or
POINT general annuity.
According to… Annuity
Simple Annuity – an annuity General Annuity – an
where the payment interval annuity where the payment
Payment Interval and and interest period are the interval and interest period
Interest Period same. are not the same.

Payments are made at the A deposit of P5,500 was made at

beginning of each month for a 5 the end of every six months to an
year-loan that charges 1.05% account that earns 5.6% interest
interest compounded quarterly. compounded semi annually.

GENERAL ANNUITY SIMPLE ANNUITY

STARTING Determine if the given problem represents simple annuity or
POINT general annuity.
According to… Annuity
Ordinary Annuity – an Annuity Due – an annuity
annuity which the payments which the payments are
are made at the end of each made at the beginning of
Time of Payment payment interval. each payment interval.

Payments are made at the beginning A deposit of P5,500 was made at the end of
of each month for a 5 year-loan that every six months to an account that earns
charges 1.05% interest compounded 5.6% interest compounded semi annually.
quarterly.

ANNUITY DUE ORDINARY ANNUITY

STARTING Determine if the given problem represents simple annuity or
general annuity.
POINT
According to… Annuity
Annuity Certain – an Contingent Annuity – an
Duration annuity in which payments annuity in which payments
begin and end at definite extends over for in
times. indefinite time.

Payments are made at the beginning A deposit of P5,500 was made at the end
of each month for a 5 year-loan that of every six months to an account that
charges 1.05% interest compounded earns 5.6% interest compounded semi
quarterly. annually.

ANNUITY CERTAIN CONTINGENT ANNUITY

 SIMPLE ANNUITY
Simple Annuity – an annuity where the payment interval and
interest period are the same.
FORMULA
(1 + 𝑖) −1 𝑛 1 − (1 + 𝑖)−𝑛
𝐹=𝑅 𝑃=𝑅
𝑖 𝑖
𝑟
Where F is the future value, 𝑖=
P is the present value, 𝑚 Where r is nominal rate,
R is the regular payment, m is number of conversion,
𝑛 = 𝑚𝑡 t is the time,
i is the interest per period,
n is the number of payments
 SIMPLE ANNUITY
Suppose you want to save P3,000 every month in a fund that gives 9%
compounded monthly. How much is the future value of your savings after 6
months. 𝑟 0.09
𝐺𝑖𝑣𝑒𝑛: 𝑅 = 3,000 r = 0.09 t = 0.5 m = 12 𝑖= =
𝑚 12
𝑛 = 𝑚𝑡 = 12 (0.5) = 6 = 0.0075
𝐹 =?
(1 + 𝑖)𝑛 −1
𝐹=𝑅
𝑖
(1 + 0.0075)6 −1 ₱ 𝟏𝟖, 𝟑𝟒𝟎. 𝟖𝟗 is the future value
𝐹 = 3000
0.0075 of your savings after 6 months.
𝐹 = 18,340.89
 SIMPLE ANNUITY
Rose wants to withdraw P36,000 every 3 months for 20 years starting 3 months
after she retires. How much must Rose deposit at retirement with 12%
compounded quarterly for the annuity?
𝑟 0.12
𝑅 = ₱36,000 r = 0.12 t = 20 m = 4 𝑖 = = = 0.03
𝑚 4
𝑛 = 𝑚𝑡 = 4 (20) = 80
1 − (1 + 𝑖)−𝑛
𝑃 =? 𝑃=𝑅
𝑖
1 − (1 + 0.03)−80 ₱ 𝟏, 𝟎𝟖𝟕, 𝟐𝟐𝟕. 𝟒𝟖 must Rose
𝑃 = 36000
0.03 deposit at retirement.
𝑃 = 1,087,227.48
 SIMPLE ANNUITY
Paolo borrowed P100,000. He agreed to pay the principal plus interest by paying an equal
amount of money each year for 3 years. What should be his annual payment if interest is 8%
compounded annually?
𝑟 0.08
𝑃 = ₱100,000 r = 0.08 t = 3 m = 1 𝑖 = 𝑚 = 1 = 0.08
𝑛 = 𝑚𝑡 = 1 (3) = 3
1 − (1 + 0.08)−3
𝑅 =? 100000 = 𝑅
0.08
100000
1 − (1 + 𝑖)−𝑛 =𝑅
𝑃=𝑅 1 − (1 + 0.08) −3
𝑖
0.08
₱ 𝟑𝟖, 𝟖𝟎𝟑. 𝟑𝟓 should be his
= 38,803.35 annual payment.
 GENERAL ANNUITY

General Annuity – an annuity where the payment interval

and interest period are not the same.
(1 + 𝑖) −1 𝑛 1 − (1 + 𝑖)−𝑛
𝐹=𝑅 𝑃=𝑅
𝑖 𝑖
𝑚2
Where F is the future value, 𝑟 𝑚1
P is the present value, 𝑖 = 1+ −1
𝑚2
R is the regular payment,
i is the interest per period, Where r is nominal rate,
n is the number of payments 𝑛= (𝑚1 )𝑡 𝑚1 is payment interval
𝑚2 length of compounding
t is the time,
 GENERAL ANNUITY
Cris started to deposit P1,000 monthly in a fund that pays 6% compounded quarterly. How
much will be the fund after 15 years?
𝑚2

𝑅 = ₱1,000 r = 0.06 t = 15 𝑚1 = 12 𝑚2 = 4 𝑟 𝑚1
𝑖 = 1+ −1
𝑛 = (𝑚1 )𝑡 = 12 15 = 180 𝑚2 4
0.06 12
(1 + 𝑖)𝑛 −1 = 1+ −1
𝐹=𝑅 4
𝑖 = 0.00497521
(1 + 0.00497521)180 −1
= 1000
0.00497521
= 290,082.51
₱ 290,082.51 will be the fund after 15
years
 CASH VALUE

The cash value or cash price of a purchase is equal to the down

payment plus the present value of the installment payment.

𝐶 =𝐷+𝑃
Where C is the cash value
D is the down payment
P is the present value
 CASH VALUE
Ben paid P200,000 as down payment for a car. The remaining amount is to be settled by paying
P16,200 at the end of each month for 5 years. If interest is 10.5% compounded monthly, what is
the cash price of car?

𝐷 = ₱200,000 𝐶 = ?= 𝐷 + 𝑃
−𝑛
𝑅 = ₱16,200 r = 0.105 1 − (1 + 𝑖)
𝐶 = 𝐷+𝑅
t=5 m = 12 𝑖
𝑟 0.105 1 − (1 + 0.00875)−60
𝑖= = = 0.00875 𝐶 = 200000 +16200
𝑚 12 0.00875
𝑛 = 𝑚𝑡 = 12 (5)= 60 𝐶 = 953,702.20
 PRAYER

Dear God, may we

through your blessings, add
purity to the world, subtract
evil from our lives, multiply the
good news of your son and
divide your gifts to share them
with others, Amen.