Professional Documents
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I. Introductory Concept:
Have you ever tried getting an appliance by applying in a Home Credit, FlexiFinance, or through
credit cards? If yes, you will realize that this lesson is the direct application of the said situation.
This learning activity sheet aims to help you on how to be practical, specifically in spending for your
needs whether be it on a cash or installment basis. It is designed to help you identify, distinguish, and
analyze problems involving simple and general annuities. It is important that you apply the skills you
will learn here in real-life situations. Good luck!
Advance Organizer
Annuity
A nnuity is a sequence of payments made at equal (fixed) intervals or periods of time. The
following are examples of annuities: rental payment, monthly pension, monthly payment for a
car loan, educational plan, life-insurance premium, etc.
In ordinary annuities, payments are made at the end of each time period. With annuities due,
they are made at the beginning.
• General Annuity – the payment interval is not the same as the interest period.
Examples:
Monthly installment of a car, lot, or house with an interest rate that is compounded
annually.
Paying a debt semi-annually when the interest is compounded monthly.
The future value (F) of an annuity is the total accumulation of the payments and interest earned.
The present value (P) of an annuity is the principal that must be invested today to provide the regular
payment of an annuity.
(1+𝑗)𝑛 −1 1−(1+𝑗)−𝑛
F=A[ ] P=A[ ]
𝑗 𝑗
𝑟
where: j = , n = mt
𝑚
P – present value
F – future value
A – periodic payment
r – annual rate
m – number of conversion period
t – time in years
Example 1. Find the future value (F) and the present value (P) of this simple annuity, given the
following:
Periodic payment (A) = Php 1,000
Rate (r) = 5% = 0.05
Number of conversion period (m) = 4 (compounded quarterly)
Term (t) = 2 years
Solution: As you can notice, the future
(1+𝑗)𝑛 −1 value is higher than the
a. F = A [ ] present value. This is
𝑗
𝑟 0.05 because of the time value of
Where: j = 𝑚 = = 0.0125 money—the concept that
4
n = mt = 4(2) = 8 any given sum is worth more
(1+0.0125)8−1 now than it will be in the
F = 1,000 [ ] future because it can be
0.0125
invested in the present.
F = Php 8,358.89
P = 1,000 (7.56812)
P = Php 7,568.12
Example 2. Your mom decided to deposit Php1,000 per month in a bank beginning January 2020 which
will earn 10% compounded monthly. How much will be in your mom’s deposit at the end of December
2025?
Given:
Regular deposit (A) = Php1,000/month
Rate (r) = 10% = 0.10
Time (t) = 5 years
No. of conversions/year (m) = 12 (compounded monthly)
𝑟 0.10
Interest rate per period ( j) = = = 0.0083
𝑚 12
n = mt = (12)(5) = 60
Required: Future value
Solution:
(1+𝑗)𝑛 −1
F=A[ ]
𝑗
(1+0.0083)60 −1
F = 1,000 [ ]
0.0083
F = 1,000 (77.355)
F = Php 77,355.26
Thus, the amount in your mom’s deposit is Php 77,355.26 after 5 years.
n = 60
Php 77,355.26
A general annuity is an annuity where the payments do not coincide with the interest periods.
You will be able to see that it is very easy to deal with general annuities once an equivalent interest rate
is determined with that equivalent rate being compounded as often as the payments are made.
(1+𝑗)𝑛 −1 1−(1+𝑗)−𝑛
F = A [(1+𝑗)𝑏 −1] P = A [ (1+𝑗)𝑏 −1 ]
𝑟 𝑝
where: j = , b= ; n = mt
𝑚 𝑐
P – present value
F – future value
A – periodic or regular payment
r – annual rate
p – number of months in a payment interval
c – number of months in a compounding period
m – number of conversion period
t – time in years
Example 3. What is the present value (P) of an annuity of ₱ 2,000.00 payable annually for 9 years if
A no. of months t
p = 12
the money is worth 5% compounded quarterly?
r m =4
no. of months (c) = 3
Given:
Regular payment (A) = ₱ 2,000
Rate (r) = 5% = 0.05
Time (t) = 9 years
No. of conversions/year = compounded quarterly; m = 4
𝑟 0.05
Interest rate per period ( j) = = = 0.0125
𝑚 4
n = mt = (4)(9) = 36
𝑝 12 𝑚𝑜𝑛𝑡ℎ𝑠
b= = =4
𝑐 3 𝑚𝑜𝑛𝑡ℎ𝑠
1−(1+𝑗)−𝑛
Using the formula in getting the present value of P = A [ (1+𝑗)𝑏 −1 ]
general annuity, we will obtain:
1−(1+0.0125)−36
P = 2,000 [ ]
(1+0.0125)4 −1
Substitute the given facts.
0.36059
P = 2,000 ( 0.0509 )
You can use your scientific calculator in P = Php 14,155.99
solving the value of P
𝑝 6 𝑚𝑜𝑛𝑡ℎ𝑠
b= = 3 𝑚𝑜𝑛𝑡ℎ𝑠 = 2
𝑐
(1+0.015)20 −1
F = 1,000 [ ]
(1+0.015)2 −1
0.346855
F = 1,000 ( )
0.030225
F = Php 11,475.77
Let Us Practice
Identify whether the given illustrates simple or general annuity.
1. A life insurance contribution is paid monthly while the interest is compounded quarterly.
2. Your mom decided to join their office cooperative and agreed to contribute P1000 per month
beginning in January 2020 which will earn 3% compounded monthly.
3. Your parents are planning to save for their retirement. To do this, they want to set aside a portion
of their salaries and contribute monthly for their retirement funds which will earn 5%
compounded quarterly.
4. Your eldest brother applied for term life insurance. His contribution per year is P40 000 which
earns 12% compounded monthly for 20 years.
5. A college educational plan earns 4% compounded quarterly and payments are made quarterly.
6. Your dad deposited all his retirement pay with bank C which will earn 4% compounded
quarterly and he had an auto-credit arrangement of P20 000 per month.
7. Sir Eli deposits P10 000 on January 20, 2020, and had deposited the same amount on the same
date every month. The China Bank credits 2.4% interest compounded annually to sir Eli’s
account.
8. Your teacher saves P5 000 every 6 months in a bank that pays 0.25% compounded monthly.
Evaluation
Multiple Choice. Choose the letter of the best answer. Write the chosen letter on a separate sheet of
paper.
1. What is the present value of the simple annuity of ₱ 5,000.00 payable semiannually for 10 years
if money is worth 6% compounded semi-annually?
a. ₱ 74,387.37
b. ₱ 67,200.42
c. ₱ 81,600.96
d. ₱ 34,351.87
2. Using the same given in item number 1, what is the accumulated amount (future value)?
a. ₱ 74,387.37
b. ₱ 67,200.42
c. ₱ 81,600.96
d. ₱ 134,351.87
For numbers 3-4, refer to the problem below.
Mr. Michael’s monthly insurance premium is ₱ 500.00, payable at the end of each month. His
policy matures 20 years later, after which he can withdraw all his payments plus the interest
earned. If the money is worth 15% compounded monthly, how much does he expect to
withdraw on the maturity of his policy?
3. What is being asked in the problem?
a. Cash Value
b. Regular Periodic payment
c. Future Value
d. Present Value
4. How much does he expect to withdraw on the maturity of his policy?
a. ₱ 800,519.00
b. ₱ 798,716.74
c. ₱ 748,619.74
d. ₱ 543,519.84
5. Find the present value of an annuity of ₱20,000.00 payable semi-annually for 5 years if
money is worth 6% per year compounded quarterly.
V. Answer Key
P = 32,884.57 5. C
10. General annuity 4. C
9. General annuity 4. F = 48,318.22
3. C
8. General annuity P = Php 135,569
2. D
7. General annuity 3. F = Php152,760
1. A
6. General annuity B.
Evaluation
5. Simple annuity P = Php 45,072
4. General annuity 2. F = Php 50.796
3. General annuity P = Php 87,282
2. Simple annuity 1.F = Php 92,675
1. General annuity A.
Let Us Practice More
Let Us Practice
VI. References
➢ Department of Education Region IV. General Mathematics – SHS Quarter 2 - Module 4-5
➢ Department of Education Region II. General Mathematics – Grade 11 Quarter 2 –
Learning Activity Sheets
➢ https://mathalino.com/reviewer/engineering-economy/types-annuities
Prepared by:
JENNIE F. OLIVENZA
Special Science Teacher I
LAS Writer