Republic of the Philippines

Department of Education
Regional Office IX, Zamboanga Peninsula

11 Zest for Progress

Z P eal of artnership

General Mathematics
Quarter 2 - Module 4:
General Annuity

Name of Learner: ___________________________

Grade & Section: ___________________________
1
Name of School: ___________________________
General Mathematics
Alternative Delivery Mode
Quarter 2 – Module 4: General Annuity
First Edition, 2020

Republic Act 8293, section 176 states that: No copyright shall subsist in any
work of the Government of the Philippines. However, prior approval of the government
agency or office wherein the work is created shall be necessary for exploitation of such
work for profit. Such agency or office may, among other things, impose as a condition
the payment of royalties.

Borrowed materials (i.e., songs, stories, poems, pictures, photos, brand names,
trademarks, etc.) included in this module are owned by their respective copyright
holders. Every effort has been exerted to locate and seek permission to use these
materials from their respective copyright owners. The publisher and authors do not
represent nor claim ownership over them.

Development Team of the Module

Writer’s Name: SOPHIA M. CAPA

Editor’s Name: PACIANO E. RECABO

Reviewer’s Name: ISMAEL K. YUSOPH

Management Team: MA. LIZA R. TABILON

LOURNA I. POCULAN

CID Chief LILIA E. ABELLO

EVELYN C. LABAD

MA. THERESA M. IMPERIAL

NORALYN R. SABANAL

Printed in the Philippines by ________________________

Department of Education – Region IX ZAMBOANGA PENINSULA
Office Address: Sindangan, Zamboanga del Norte
Contact No.: 09355733118
E-mail Address: sophia.capa@deped.gov.ph

2
 11

General Mathematics
Quarter 2 – Module 4:
General Annuity

3
 Lesson
1 General Annuity

What I Need to Know

This module will tackle general annuity. With this, you will deal with various sets
of general annuity problems such as maturity value, present value, and future value.
You have learned from the previous lesson, that simple annuity is. The basic difference
is that general annuity’s compounding and payment periods do not happen at the
same time. For example, a life insurance’s contribution is monthly while the interest is
compounded quarterly.

After going through this module, you are expected to:

1. Find the future value and present value of general annuities.

What’s In
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.
 Donna plants 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 ₱50 000.00 by making equal quarterly
payments.
 Samson plans to make equal monthly withdrawals from his ₱1 000 000.00
retirement income fund.

4
 What’s New
Why is it important to start investing early to any savings plan?

Determine the amount of each annuity.

A B
1. ₱5 000.00 deposited every month 1.₱5 000.00 deposited every month
for 5 years at 8% per year for 5 years at 8% per year
compounded monthly compounded semi-annually
2. ₱1 500.00 deposited every six 2. ₱1 500.00 deposited every 5
months for 10 years at 6% per months for 10 years at 6% per year
year compounded semi-annually compounded monthly
3. ₱2 500.00 deposited every year 3. ₱2 500.00 deposited every year
for 15 years at 10% per year for 30 years at 10% per year
compounded annually compounded semi-annually
Compare the annuity problems in A to the annuity problems in B.

In the above annuity, the statements in column B have payment intervals that are not
the same as the compounding periods; hence, they are general annuities.

Future and Present Value of a General Ordinary Annuity The future value F and
present value P of a general ordinary annuity is given by
n n
FR
1 j  1
and P  R
1  1  j 
b b
1  j   1 1  j   1
where R is the regular payment;
j is the equivalent interest rate per payment interval converted from the
 r annual rate 
interest rate per period  j   ; and
 K  no. of conversion period in a year 
n is the number of payments
p
b  , where p is the number of months in a payment interval and c is the
c
number of months in a compounding period

The formulas for F and P are same as those in Simple annuity lesson. The extra step
occurs in finding j: the given interest rate per period must be converted to an
equivalent rate per payment interval.

Example 1. Present Value of General Ordinary Annuity

Find the present value of an ordinary annuity of ₱2 000.00 payable annually for
9 years if the money is worth 5% compounded quarterly.

5
Solution.
r 5%
Given: R = ₱2 000.00 ; i   0.0125
K 4
c=3 ; n = 9(4) = 36
p 12
p = 12 ; b  4
c 3

n 1  1  0.0125 36 
1  1  j      14,155.99
PR  2000 
b
1  j   1  1  0.0125  1 
4
 

Example 2. Present Value of General Ordinary Annuity with Down Payment

The latest cell phone sells for ₱5 000.00 down payment and ₱900.00 every end
of each quarter for 3 years at the rate of 8% compounded semi-annually. Find the
cash equivalent of the cell phone.
Solution.
r 8%
Given: R = ₱900.00 ; i   0.04
K 2
p 3
c=6 ; b    0.5
c 6
n = 3(2) = 6 ; p=3

n  1  1  0.04 6 
1  1  j      9 529.28
PR  900 
b
1  j   1  1  0.04 0.5  1
 

CE = DP + PV = 5 000 + 9 529.28 = ₱14 529.28

Example 3. Future Value of General Ordinary Annuity

₱25 000.00 will be invested in an account at the end of each year at 4%
compounded semi-annually. Find the size of the fund at the beginning of the 16th year.
Solution.
r 4%
Given: R = ₱25 000.00 ; i   0.02
K 2
K=2 ; c=6
p 12
b  2 ; t = 15 years
c 6
n = 15(2) = 30 ; p = 12

n  1  0.02 30
 1
FR
1  j  1
 25000      502, 080.19
b  2 
1  j   1  1  0.02   1 

6
 What is It

Present Value of General Annuity Due Future Value of General Annuity Due
1  1  i n   i
  1  i n  1   i

P  R    i F  R    i
 i  1  i   1 
 b  i  1  i   1 
 b
   
where P = Present Value
F = Future Value
R = Annuity Payment
 r annual rate 
i = rate per compounding period  i  
 K  no. of conversion period in a year 
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
p
b
c

Example 4. Present Value of General Annuity Due

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.
r 6%
Given: R = ₱10 000.00 ; i   0.03
K 2
K=2 ; c=6
p 3
b    0.5 ; t = 10 years
c 6
n = 10(2) = 20 ; p=3
1  1  j n   i

P  R    i
 i  1  i   1 
 b
 
1  1  0.03 20  
P  10000 
   0.03


 0.03
 0.03   1  0.030.5  1 
 
 10, 000(14.87747486)(2.014889157  0.03)
= ₱304 227.87
Example 5. Present Value of General Annuity Due with Down Payment
Mr. Samson bought a brand new car for ₱500 000.00 down payment and ₱20
000.00 every first day of each month for 3 years. If payments are based on 8%
compounded semi-annually, what is the total cash price of the car?
Solution.

7
 r 8%
Given: R = ₱20 000.00 ; i   0.04
K 2
DP = ₱500 000.00 ; K=2
p 1
b  ; t = 3 years
c 6
n = 3(2) = 6 ; p=1
c=6
1  1  j n   i

P  R    i
 i 
 1  i   1 
b
 
1  1  0.04 6   
P  20000 
    0.04 
 0.04
 0.04   1
   1  0.04  6  1 

 20, 000(5.242136857)(6.099237395  0.04)
= ₱643 654.45

Total Cash = Down Payment + Present Value

= ₱500 000.00 + ₱643 654.45
= ₱1 143 654.45

Example 6. Future Value of General Annuity Due

Emy wants to save ₱100 000.00 for her first year of college. She deposits ₱3
500.00 at the beginning of each month in an account that earns 4% per year
compounded semi-annually. Will Emy have enough money saved at the end of 2
years?
Solution.
r 4%
Given: R = ₱3 500.00 ; i   0.02
K 2
c=6 ; K=2
p 1
b  ; t = 2 years
c 6
n = 2(2) = 4 ; p=1

 1  i n  1   i

F  R   i
 i   1  i b  1 
 
 1  0.02 4  1  
F  3500      0.02 
 0.02
 0.02   1
   1  0.02  6  1 

 3500(4.121608)(6.069807484)
= ₱87 560.78
Because ₱87 560.78 is less than ₱100 000.00, Emy will not have
enough money at the end of 2 years.

8
Regular Payment of General Annuity

To solve for R in the formulas for Present and Future Value for General Annuity, we
can transform the formulas as follows:

For General Annuity,

 1 i k 1   1  i k 1 
R  P
   RF
  
1  1  i n   1  i n  1 
   

Example 7. Mr. and Mrs. Salazar will need ₱300 000.00 in 2 years to start their own
business. They plan to save money by making monthly deposits at the end of each
month in an account earning 8% per year compounded quarterly. How much must
they make monthly?
Solution.
r 8%
Given: F = ₱300 000.00 ; i   0.02
K 4
c=3 ; K=4

p 1
b  ; t = 2 years
c 3
n = 2(4) = 8 ; p=1

 1  i k 1 
RF
  
 1  i n  1 
 
 1

R  300, 000  1  0.02  3 1

 1  0.02 8  1 
 
= ₱11 574.16

Example 8. 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.
r 8%
Given: P = ₱1 000 000.00 ; i   0.04
K 2
c=6 ; K=2

p 1
b  ; t = 15 years
c 6
n = 15(2) = 30 ; p=1

9
  1 i k 1 
R  P
  
1  1  i n 
 
 1 
  1  0.04  6 1 
R  1000000 
30 
1  1  0.04  
 
= ₱9 481.53

A cash flow is a term that refers to payments received (cash inflows) or payments or
deposits made (cash outflows). Cash inflows can be represented by positive numbers
and cash outflows can be represented by negative numbers.

The fair market value or economic value of a cash flow (payment stream) on a
particular date refers to a single amount that is equivalent to the value of the payment
stream at that date. This particular date is called the focal date.

Example 5. Mr. Ribaya received two offers on a lot that he wants to sell. Mr. Ocampo
has offered ₱50,000 and a P1 million lump sum payment 5 years from now. Mr. Cruz
has offered ₱50,000 plus ₱40,000 every quarter for five years. Compare the fair
market values of the two offers if money can earn 5% compounded annually. Which
offer has a higher market value?
Solution.

Given:
Mr. Ocampo’s Offer Mr. Cruz’s Offer
₱50,000 down payment ₱50,000 down payment
₱1,000,000 after 5 years ₱40,000 every quarter for 5 years

Mr. Ocampo’s offer: The future value of ₱1,000,000 at the end of the term at 5%
compounded annually is given by
n
F  P 1  j   1
5
F  50,000 1  0.05
F  63,814.08
Fair market value of this offer at the end of the term = 63,814.08  1, 000, 000
 1, 063,814.08

Mr. Cruz’s offer:

The future value of this ordinary general annuity is given by:

10
 n
FR
1  j   1
b
1  j   1
20
F  40000
1  0.012272   1
0.25
1  0.12272  1
F  900,509.40

The future of ₱50,000 at the end of the term is ₱63,814.08, which was already
determined earlier.

Fair Market Value = 900,509.40 + 63,814.08 = ₱964,323.48

As expected, Mr. Ocampo’s offer still has a higher market value, even if the focal date
was chosen to be at the end of the term. The difference between the market values of
the two offers at the end of the term is
1,063,814.08 –964,323.48 = ₱99,490.60.
You can also check that the present value of the difference is the same as the
difference computed when the focal date was the start of the term:
5
P  99, 490.60 1  0.05  77,953.49

What’s More

The present value of an annuity of ₱5 000.00 every end of 3 months for 10 years when
the interest rate is 4% compounded annually is ₱164 631.30.

A. Use the given situation to give the values of the following variables:
1. R = 6. i =
2. t = 7. c =
3. K = 8. p =
4. n = 9. b =
5. r = 10. P =
B. Solve each of the following.

1. Calculate the future value for an ordinary annuity of ₱10, 000 per month for 6 months
at 5% interest compounded monthly. Use the long method of computing ordinary
annuity.
2. What is the future value if your mom decides to invest in an insurance plan for ₱3
000 per month for 20 years at 8% compounded monthly?
3. Find the present value of an ordinary annuity earning 12% compounded monthly if
payments of ₱2 000 are made monthly for 10 years.

11
 What I Have Learned
This module introduced you to the repercussions of “long-term” savings and returns.
Annuities showed you various facets of relevant financial products that you and your
family can engage in today or in the future. You also learned that the value of money
today is different in the future and in the past, whether you save in lump sum or
installment.

Savings is a big challenge for majority of Filipinos as shown in many studies, and
hopefully, this module opened your eyes to the value of saving. The grand realization
here is that saving should be a lifestyle. The computations presented in the examples
may have been a little tricky for you, but you need all of those to equip you and help you
better decide what financial products to choose, how long you will invest, and what the
terms and conditions are. For all you know, you might become the financial adviser of
your parents.

Financial education is the key. Knowledge on annuities, whether simple or general, will
help you to be more aware of your financial situation, especially in dealing with long-
term financial plans. Lastly, the knowledge of annuities will equip you in your journey
toward financial success.

What I Can Do
In your own opinion, observation and experienced, what comes first to your mind when
you encounter the word insurance? Is this something that you want to have in the future
as your flagship savings?

Assessment

A. Find the future value F of the following general annuities.

1. Monthly payments of 3,000 for 4 years with interest rate of 3% compounded
quarterly
2. Quarterly payment of 5,000 for 10 years with interest rate of 2% compounded
annually
3. Annual payments of P12, 500 with interest rate of 10.5% compounded semi-
annually for 6 years

12
B. Find the present value P of the following general annuities.
4. Monthly payments of 2,000 for 5 years with interest rate of 12% compounded
quarterly
5. Quarterly payment of 15,000 for 10 years with interest rate of 8%
compounded annually
6. Annual payments of P20,500 with interest rate of 8.5% compounded semi-
annually for 3 years

C. Find the periodic payments of the following general annuities

7. Monthly payment of the future value of P50,000 for 1 year with an interest
rate of 10% compounded quarterly
8. Quarterly payment of an accumulated amount of P80,000 for 2 years with
interest rate of 8% compounded annually
9. Annual payment for the present value of P100,000 for 2 years with an interest
rate of 12% compounded semi-annually
10. Semi-annual payment of the loan P800,000 for 5 years with an interest rate
of 9% compounded annually

Additional Activities
If you believe that you learned a lot from the module and you feel that you need more
activities, well this part is for you.
Your grandfather have decided to sell their real estate property in Valenzuela City and
they are planning to purchase a condominium unit in Pasig City. They posted an online
advertisement for this. A week after, two offers came.
● Offer 1: ₱500, 000 down payment plus ₱1 500 000.00 lump sum payment 10 years
from now
● Offer 2: ₱500, 000 down payment plus ₱12 500 per month for 10 years
Which among the two offers should your grandparents choose if the payment will
have an interest of 12% compounded monthly? Find the fair market value of the two
offers.

13
References

Books:

Oronce, Orlando A. General Mathematics, 1st Ed. Quezon City: Rex Book Store Inc.,
2016.

General Mathematics, 1st Edition: Diwa Book Store Incorporated, 2016

General Mathemtics Learning Material for Senior High School, 1st Edition: Department
of Education 2016

Online Sources:

https://www.google.com/search?q=multiple+choice+test+questions+on+simple+annu
ities&source=lmns&bih=566&biw=1266&hl=en&sa=X&ved=2ahUKEwjD97KHtqfrAh
UM4pQKHTgKAxoQ_AUoAHoECAEQAA

15
16