Simple and General

Annuities
According to payment Simple Annuity - an General Annuity - an
interval and interest annuity where the annuity where the
period payment interval is the payment interval is not
same as the interest the same as the interest
period period
According to time of Ordinary Annuity – a Annuity Due - a type of
payment type of annuity in which annuity in which the
the payments are made payments are made at
at the end of each the beginning of each
payment interval payment interval

According to duration Annuity Certain – an Contingent Annuity –

annuity in which an annuity in which the
payments begin and payments extend over
end at definite times. an indefinite length of
time.
 Definition of Terms

Term of the annuity (t) – time between the first payment

interval and last payment interval.

Regular or periodic payment (R) – the amount of each

payment
Amount (Future Value) of an Annuity (F) – sum of future
values of all payments to be made during the entire term of
the annuity.
Present Value of an Annuity (P) – sum of present value of all
payments to be made during the entire term of the annuity.
 Formulas

(𝟏 + 𝒊)𝒏 −𝟏
Future Value of Simple Annuity (F) 𝑭=𝑹
𝒊

𝟏 − (𝟏 + 𝒊)−𝒏
Present Value of Simple Annuity (P) 𝑷=𝑹
𝒊

𝑭∗𝒊
Periodic Payment of an Annuity (R) 𝑹=
(𝟏 + 𝒊)𝒏 −𝟏

R = regular payment 𝒏 = 𝒎𝒕
𝑷∗𝒊
i = interest rate per period 𝑹=
n = number of payments
𝟏 − (𝟏 + 𝒊)−𝒏
r = nominal rate
𝒓
𝒊=
m = number of conversion periods 𝒎
Example 1. Determine if the given situations represent
simple annuity or general annuity.

a. Payments are made at the end of each month for a

loan that charges 1.05% interest compounded
quarterly.
GENERAL ANNUITY

b. A deposit of P5,500 was made at the end of every

three months to an account that earns 5.6% interest
compounded quarterly.

SIMPLE ANNUITY
Example 2. Determine whether the situation describes an
ordinary annuity or an annuity due.

a. Jun’s monthly mortgage payment is P35,148.05 at the

end of each month.

ORDINARY ANNUITY

b. The rent of apartment is P7,000.00 and due at the

beginning of each month.

ANNUITY DUE
Example 3
Suppose Mrs. Remoto would like to save P3,000 every month in a
fund that gives 9% compounded monthly. How much is the amount or the
future value of her savings after 6 months.

Given: R = P3,000 (𝟏 + 𝒊)𝒏 −𝟏

𝑭=𝑹
t = 6 months 𝒊
r = 0.09 (𝟏 + 𝟎. 𝟎𝟎𝟕𝟓)𝟔 −𝟏
m = 12 𝑭 = 𝑷𝟑, 𝟎𝟎𝟎
1 𝟎. 𝟎𝟎𝟕𝟓
n = mt = 12 ( ) = 6
2
𝑟 0.09
i= = = 0.0075
𝑚 12
𝑭 = 𝑷𝟏𝟖, 𝟑𝟒𝟎. 𝟖𝟗
(𝟏 + 𝒊)𝒏 −𝟏
𝑭=𝑹
𝒊
Example 4
In order to save for her high school graduation. Marie decided to
save P200 at the end of each month. If the bank pays 0.25% compounded
monthly, how much will her money be at the end of 6 years?

Given: R = P200 (𝟏 + 𝒊)𝒏 −𝟏

𝑭=𝑹
t = 6 months 𝒊
r = 0.0025 0.0025 𝟕𝟐
m = 12 (𝟏 + ) −𝟏
𝑭 = 𝑷𝟐𝟎𝟎 12
n = mt = 12(6) = 72 0.0025
𝑟 0.0025 12
i= =
𝑚 12
𝑭 = 𝑷𝟏𝟒, 𝟓𝟎𝟕. 𝟎𝟐
(𝟏 + 𝒊)𝒏 −𝟏
𝑭=𝑹
𝒊
Example 5 Rose works very hard because she wants to have enough
money in her retirement account when she reaches the
age of 60. She wants to withdraw P36,000 every 3 months
for 20 years starting 3 months after she retires. How
much must Rose deposit at retirement at 12% per year
compounded quarterly for the annuity?

Given: R = P36,000
t = 20 years 𝟏 − (𝟏 + 𝒊)−𝒏
𝑷=𝑹
r = 0.12 𝒊
m=4
𝟏 − (𝟏 + 𝟎. 𝟎𝟑)−𝟖𝟎
n = mt = 20(4) = 80 𝑷 = 𝑷𝟑𝟔, 𝟎𝟎𝟎
𝑟 0.12 𝟎. 𝟎𝟑
i= = = 0.03
𝑚 4

𝟏 − (𝟏 + 𝒊)−𝒏 𝑷 = 𝑷𝟏, 𝟎𝟖𝟕, 𝟐𝟐𝟕. 𝟒𝟖

𝑷=𝑹
𝒊
The cash value or cash price
of a purchase is equal to
the down payment (if there
is any) plus the present
value of the installment
payment.
Example 6 Mr. Ribaya 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 his car?
Given: Down payment = P200,000 𝟏 − (𝟏 + 𝒊)−𝒏
𝑷=𝑹
R = P16,200 𝒊
t = 5 years 𝟏 − (𝟏 + 𝟎. 𝟎𝟎𝟖𝟕𝟓)−𝟔𝟎
𝑷 = 𝑷𝟏𝟔, 𝟐𝟎𝟎
r = 0.105 𝟎. 𝟎𝟎𝟖𝟕𝟓
m = 12
n = mt = 12(5) = 60
𝑷 = 𝑷𝟕𝟓𝟑, 𝟕𝟎𝟐. 𝟐𝟎
𝑟 0.105
i= = = 0.00875 Cash Value = DP + P
𝑚 12
𝑪𝑽 = 𝑷𝟐𝟎𝟎, 𝟎𝟎𝟎 + 𝑷𝟕𝟓𝟑, 𝟕𝟎𝟐. 𝟐𝟎
𝟏 − (𝟏 + 𝒊)−𝒏
𝑷=𝑹 𝑪𝑽 = 𝑷𝟗𝟓𝟑, 𝟕𝟎𝟐. 𝟐𝟎
𝒊
Thank you