Lesson 2

General Annuity
 Objectives

At the end of this lesson, the learner should be able to

• accurately differentiate a general annuity from a

simple annuity;

• correctly determine if a real-life situation illustrates

the future value or the present value of a general
annuity;
 Objectives

• correctly determine if a real-life situation illustrates

an ordinary general annuity or a general annuity
due;

• correctly solve for the future value or the present

value of a general annuity.
 Essential Questions

• What is a general annuity?

• How will you know if the situation illustrates a future value

or a present value of a general annuity?

• How will you know if the situation illustrates an ordinary

general annuity or a general annuity due?
 Essential Questions

• How will you solve for the future value or the present
value of a general annuity?
 Warm Up!

Before we start with today’s lesson, let’s have a short drill on

solving problems involving simple interest by working as a
class on the following online exercise.

(Click the link to access the exercise.)

Tranter, John. “Interest.” Transum. Retrieved 30 April 2019

from https://bit.ly/2GRvBR5
 Guide Questions

• How do you solve problems involving interest?

• How does the compounding period affect the amount of

interest earned by a principal?
 Learn about It!

General Annuity
1 it is an annuity certain whose compounding period is not the same as the
payment interval.

Example:

Sheldon buys a brand-new TV with installment payment at

the end of each month with interest compounded annually.
Learn about It!

2 Solving for the Future Value and Present Value of a

General Annuity
1. Identify the given information from the problem.

We need to identify the following values.

regular or periodic payment,

number of regular or periodic payments per year,
periodic rate, given by , where is the interest rate and is the number of
compounding periods within a year, and
total number of payments, given by where is the length of the term in years.
Learn about It!

2 Solving for the Future Value and Present Value of a

General Annuity
2. Solve for .

We introduce another value , which is equal to the number of compounding

periods over the number of payments per year. This process transforms the
compounding period to the payment period. It is given by

 
where is the number of compounding periods, and is the number of payments
per year.
Learn about It!

2 Solving for the Future Value and Present Value of a

General Annuity
3. Solve for

This is the equivalent periodic interest rate per payment period. It is given by
 
Learn about It!

2 Steps in Solving for the Future Value and Present

Value of a General Annuity
4. Compute for the Future Value or Present Value.

The following formulas are used in finding the future value and present value of
an ordinary general annuity.
Future Value of an Present Value of an
Ordinary General Annuity Ordinary General Annuity
Learn about It!

2 Steps in Solving for the Future Value and Present

Value of a General Annuity
The following formulas are used in finding the future value and present value of a
general annuity due.

Future Value of a General Present Value of a General

Annuity Due Annuity Due
 Learn about It!

Example:
Joanne deposits ₱every end of the month in a savings
account at interest compounded quarterly. How much will
her money be after five years?
 Learn about It!

In this case, we have the following given information.

• The regular payment is ₱
• The number of regular payment within a year is since
Joanne deposits ₱every end of the month.
• The number of compounding periods is , and the interest
rate is .
• The periodic interest is
• The total number of payments is .
 Learn about It!

• The value of is

• The value of is
 Learn about It!

• The future value of the ordinary general annuity is

computed as follows.

Thus, her money will grow to ₱64 634.57 after 5 years.

 Try It!

Example 1: Marco deposits ₱ at the end of every two months

in an account paying compounded quarterly. What will be
the amount in his account after years?
 Try It!

Example 1: Marco deposits ₱ at the end of every two months

in an account paying compounded quarterly. What will be
the amount in his account after years?
Solution:
1. Identify the given information from the problem.

The regular payment is .

The interest rate is or . The number of compounding periods

within a year is since compounding is done quarterly.
 Try It!

Example 1: Marco deposits ₱ at the end of every two months

in an account paying compounded quarterly. What will be
the amount in his account after years?
Solution:
Thus, the periodic rate is .

The length of the term is 5 years or . The payment is made at

the end of every two months or .
Thus, the total number of payments is
.
 Try It!

Example 1: Marco deposits ₱ at the end of every two months

in an account paying compounded quarterly. What will be
the amount in his account after years?
Solution:
2. Solve for
 Try It!

Example 1: Marco deposits ₱ at the end of every two months

in an account paying compounded quarterly. What will be
the amount in his account after years?
Solution:
3. Solve for
 Try It!

Example 1: Marco deposits ₱ at the end of every two months

in an account paying compounded quarterly. What will be
the amount in his account after years?
Solution:
3. Solve for
 Try It!

Example 1: Marco deposits ₱ at the end of every two months

in an account paying compounded quarterly. What will be
the amount in his account after years?
Solution:
4. Determine the kind of annuity illustrates in the problem.

The situation illustrates the future value of the annuity since

we would like to know the value after 5 years. Moreover, it is
an ordinary general annuity since the payment is made at the
end of every two months.
 Try It!

Example 1: Marco deposits ₱ at the end of every two months

in an account paying compounded quarterly. What will be
the amount in his account after years?
Solution:
5. Solve for the future value of the ordinary annuity.
 Try It!

Example 1: Marco deposits ₱ at the end of every two months

in an account paying compounded quarterly. What will be
the amount in his account after years?
Solution:
 Try It!

Example 1: Marco deposits ₱ at the end of every two months

in an account paying compounded quarterly. What will be
the amount in his account after years?
Solution:
Thus, Marco will have ₱ on his account at the end of years.
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges interest compounded monthly. He
agreed to pay ₱ at the beginning of every three months for
two years. What is the cash price of the cellphone?
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges interest compounded monthly. He
agreed to pay ₱ at the beginning of every three months for
two years. What is the cash price of the cellphone?
Solution:
1. Identify the given information from the problem.

The regular payment is .

The interest rate is or . The number of compounding periods
within a year is since compounding is done monthly.
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges interest compounded monthly. He
agreed to pay ₱ at the beginning of every three months for
two years. What is the cash price of the cellphone?
Solution:
Thus, the periodic rate is .

The length of the term is 2 years or . The payment is made

quarterly or . Thus, the total number of payments is .
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges interest compounded monthly. He
agreed to pay ₱ at the beginning of every three months for
two years. What is the cash price of the cellphone?
Solution:
2. Solve for
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges interest compounded monthly. He
agreed to pay ₱ at the beginning of every three months for
two years. What is the cash price of the cellphone?
Solution:
3. Solve for
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges interest compounded monthly. He
agreed to pay ₱ at the beginning of every three months for
two years. What is the cash price of the cellphone?
Solution:
4. Determine the kind of annuity illustrated in the problem.

The situation illustrates the present value of the annuity

since we would like to know the present cash price of the
phone. Moreover, it is a general annuity due since the
payment is made at the beginning of every three months.
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges interest compounded monthly. He
agreed to pay ₱ at the beginning of every three months for
two years. What is the cash price of the cellphone?
Solution:
5. Solve for the present value of the annuity due.
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges interest compounded monthly. He
agreed to pay ₱ at the beginning of every three months for
two years. What is the cash price of the cellphone?
Solution:
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges interest compounded monthly. He
agreed to pay ₱ at the beginning of every three months for
two years. What is the cash price of the cellphone?
Solution:
Thus, the cash price of the cellphone is ₱.
 Let’s Practice!

Individual Practice:

1. Mr. Dela Cruz plans to invest money for years. He pays ₱

at the end of every month. The plan earns interest rate
compounded semiannually. How much will the money be
after years?
2. Allison wants to buy a new car worth ₱ via installment.
How much should be the regular payments at the end of
every month for five years if the money is compounded by
quarterly?
 Let’s Practice!

Group Practice: To be done in groups of four.

Mrs. Mendoza wants to start a retirement plan. Two

companies offer different policies. In Company A, she should
deposit ₱ at the beginning of every month. Her account will
earn interest compounded quarterly. In Company B, she
should deposit ₱ at the end of every three months. Her
account will earn interest compounded annually. Both
policies are payable for years. Which of these policies should
she choose?
Key Points

General annuity
1 It is an annuity certain whose compounding period is not the same as the
payment interval.

2 Solving for the Future Value and Present Value of a

General Annuity
1. Identify the given information from the problem.
2. Solve for .
3. Solve for .
4. Compute for the Future Value or Present Value.
Key Points

2 Solving for the Future Value and Present Value of a

General Annuity
The following formulas are used in finding the future value and present value of
an ordinary general annuity.

Future Value of an Present Value of an

Ordinary General Annuity Ordinary General Annuity
Key Points

2 Solving for the Future Value and Present Value of a

General Annuity
The following formulas are used in finding the future value and present value of a
general annuity due.

Future Value of a General Present Value of a General

Annuity Due Annuity Due
 Synthesis

● How do you compute for the future and present values of

a general annuity?

● How does knowing general annuities help you in your

decision-making regarding finances?

● In your opinion, when do we say that a particular value is

fair to both buyer and seller?