General Math-S E C O N D Q U A R T E R

Chapter 7: Annuities
Lesson 29: General Annuity
Lesson Topics: [Session 1]
1. Future value of a general Annuity

2. Present value of a general Annuity

PREREQUISITE SKILLS: Knowledge of Simple Annuity
M11GM-IIc-d-1,and d-2
Chapter 7: Annuities
Lesson 29: General Annuity
Objective: At the end of this lesson,
learners shall be able to
 find the future (F) value
and present (P) value of
general annuities.
M11GM-IIc-d-1, and d-2
Equivalent Rates
Activity Game
Time limit: approximately 8 minutes
Refference: General math Leaners material, page 183-198
 What if you are
assigned to
convert interest
rate to an
equivalent rate?
 MECHANICS OF THE GAME

NOTE: USED YOUR INDIVIDUAL

SCIENTIFIC CALCULATOR.
Surprise gift certificate awaits the winners!
 Mechanics of the Game
 Each group will draw 3 papers
strip (or equivalent) with a
given time period,
 compute for the equivalent
rates.
 The group with the fastest
and most number of correct
answer is the winner.
6
 Equivalent Rates Activity Game
1. Given Interest Rate Equivalent Interest Rate
10% compounded: _________compounded
10.47% :
monthly annually

2. Given Interest Rate Equivalent Interest Rate

10.13%
10% compounded: _________compounded:
quarterly semi-annually

3. Given Interest Rate Equivalent Interest Rate

12% compounded: 11.83%
_________compounded:
semi-annually quarterly

Time limit: approximately 6 minutes

7
 1. Given Interest Rate Equivalent Interest Rate
10% compounded monthly 10.47%
_________compounded annually

F=
F1 = F2
P=P divide both side by P
𝟏 𝟏
𝒕 raise both side by
𝒕 =
=
𝟏+¿ −𝟏 solve for the value of

= 0.1047 Note: j = , = (j)(m)

= (0.1047)(1)
Thus, the Equivalent rate is 0.1047 or 10.47%
8
 2. Given Interest Rate Equivalent Interest Rate
10.13% compounded semi-annually
10% compounded quarterly _________
F=
F1 = F2
P=P divide both side by P
𝟏 𝟏
2 raise both side by
=
𝟐𝒕 𝟐𝒕

=
𝟏+¿ −𝟏 solve for the value of

= (0.0563)(2) Note: j = , = (j)(m)

= 0.1013
Thus, the Equivalent rate is 0.1013 or 10.13%
9
 3. Given Interest Rate Equivalent Interest Rate
12% compounded semi-annually 11.83%
_________compounded quarterly

F=
F1 = F2
P=P divide both side by P
𝟏 𝟏
raise both side by
=
𝟒𝒕 𝟒𝒕
2
=
𝟏+¿ −𝟏 solve for the value of

= (0.0296)(4) Note: j = , = (j)(m)

= 0.1183
Thus, the Equivalent rate is 0.1183 or 11.83%
10
ACTIVITY

Class! 11
 of the
This lesson will show us on how to
calculate [application] the:
 future [F] values of general
annuities, and
 present [P] values of general
annuities.
How can we apply the concept of
Future and Present values of annuities
to solve real-life situations?
12
What is a General Annuity?
An annuity where the
payment interval is
not the same as the
interest period.
13
What is a General Ordinary Annuity?

A general annuity in
which the periodic
payment is made at the
end of the payment
interval. 14
“What real life
examples of
general annuity
you are familiar
with?
“What real life examples of general
annuity you are familiar with?
“What real life examples of general
annuity you are familiar with?
Examples of Annuity:
 Monthly installment payment 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.
 Problem Solving Rules
 Rule No. 1: Familiarize the Concepts of Future
and Present value of annuity.
 Rule No. 2: Use individual Calculator in solving
Annuity problems and solution will be
presented in the class by the Learners.
 Rule No. 3: Random electronic selection will be
use in selecting a presenter.
 Rule No. 4: Learners shall be divided into four
groups and as much as possible with equal
number of male and female per group.
18
 Illustrate the cash flow of a general
annuity in a Time Diagram.

Annuity cash flow in a time diagram

R R R R R . . . R
0 1 2 3 4 5 . . . n

R is the regular payment n is the number of payments

19
 How to compute the amount (Future value) of a General
Ordinary Annuity.
The amount or Future value of General
R Annuity
Ordinary R isRgiven by R R . . . F
R
0 1 2 3 4 5 . . . n

The amount or Future value of General Ordinary

Annuity is given by
F= R
Where:
R is the regular payment
j is the equivalent interest rate per payment interval
n is the number of payments
20
“Can we apply
the concepts of
Future value of
annuity in real
life situations?”
 1.
Illustrative example on how to compute for the
amount (future value) of a General Ordinary annuity

Mel started to deposit

₱1,000 monthly in a
fund that pays 6%
compounded quarterly.
How much will be in the
fund after 15 years? 22
 Mel started to deposit ₱1,000
monthly in a fund that pays 6%
compounded quarterly. How much will
be in the fund after 15 years?
Step 1: List the Given data:
R = ₱1,000, = 0.06,
t= 15 years,
m = 4 , n = (12)(15) = 180 payments
Step 2: Identify what is being ask:
Find the amount of future value F at
the end of the term.
23
Step 3: How to Do It?
R = ₱1,000
term n = (12)(15)= 180 payments
interest rate per annum = 0.06
number of conversion per year m = 4
Find: amount (Future value) at the end of the term, F

cash flow in a time diagram

F
R 1,000 1,000 1,000 . . . 1,000 1,000
0 1 2 3 . . . 179 180

180 payments
24
Step 4: Since payments are monthly, the interest rate of
6% compounded quarterly must be converted to its
equivalent rate that is compounded monthly. F=

F1 = F2
P=P divide both side
𝟏 𝟏 by P
𝟏𝟐 𝒕 𝟏𝟐 𝒕
= 3
raise both side by

=
𝟏+¿ −𝟏 solve for the value of

= 0.004975 = j Note: j =

 Thus, the interest rate per

0.004975 or 0.4975%
monthly payment interval is 25
Step 5: Apply the formula in finding the future
value of an ordinary annuity using the computed
equivalent rate. Where: R=1,000, n=180, j=0.004975

Substitute the F= R
given values to

F = 1,000

F=290,076.28
Thus, Mel will have ₱ 290,076.28
in the fund after 15 years. 26
“How about the
essence of Present
value concept of
annuity in real life
situations?”
 How to compute the amount (Present value) of a General
Ordinary Annuity.
The amount or Future value of General
P PresentOrdinary
R value Annuity
R of annuity
R R
is given by R F
. . . R
0 1 2 3 4 5 . . . n

The Present value of an Ordinary Annuity is given

by
P= R
Where:
R is the regular payment
j is the equivalent interest rate per payment interval
n is the number of payments
28
 2. Illustrative example on how to compute for the
amount (present value) of a General Ordinary annuity

Ken borrowed an amount of

money from Kat. He agrees to
pay the principal plus interest by
paying ₱38,973.76 each year for 3
years. How much money did he
borrow if interest is 8%
compounded quarterly?
29
 Ken borrowed an amount of money
from Kat. He agrees to pay the principal plus
interest by paying ₱38,973.76 each year for 3
years. How much money did he borrow if
interest is 8% compounded quarterly?
Step 1: List the Given data:
R = ₱38,973.76,= 0.08
t= 3 years,
m = 4 n = (1)(3) = 3 payments
Step 2: Identify what is being ask:
Find the amount of Present value P.
30
Step 3: How to Do It?
R = ₱38,973.76
term n = (1)(3)= 3 payments
interest rate per annum = 0.08
number of conversion per year m = 4
Find: amount (Present value) P

cash flow in a time diagram

P R=38,973.76 R=38,973.76 R=38,973.76

0 1 2 3
3 payments
31
Step 4: Since payments are yearly, the interest rate of 8%
compounded quarterly must be converted to its
equivalent rate that is compounded annually. F=

F1 = F2
P=P divide both side by P
𝟏 𝟏
𝒕 𝒕
= raise both side by

=
𝟏+¿ −𝟏 solve for the value of

= 0.082432 = j Note: j =

 Thus, the interest rate per

annual payment interval is
0.082432 or 8.24%
32
Step 5: Apply the formula in finding the present
value of an ordinary annuity using the computed
equivalent rate. Where: R=38,973.76, n=3, j=0.082432

Substitute the
P= R
given values to
P= 38,973.76

P=100,000.00
Hence, Ken barrowed ₱ 100,000
from Kat. 33
Are the concept of
Present and
Future value of
Ordinary Annuity
are clear and
understood ?
34
 As per your
assigned Groups, perform
the “Try it Now! No. 1 and 2”
 the selected Learner
[by randomizer]shall
present the solution
in the class.35
 No.
A Teacher saves ₱ 5,000
every 6 months in a bank
that pays 0.25% compounded
monthly. How much will be
her savings after 5 years?
Time limit: approximately 5 minutes
36
 A Teacher saves ₱5,000 every 6
months in a bank that pays 0.25%
compounded monthly. How much will
be her savings after 5 years?
Step 1: List the Given data:
R = ₱5,000, = 0.0025
t =, 5 years,
m = 12 , n = (2)(5) = 10 payments
Step 2: Identify what is being ask:
Find the amount of future value F at
the end of the term.
37
Step 3: How to Do It?
R = ₱5,000
term n = (2)(5)= 10 payments
interest rate per annum = 0.0025
number of conversion per year m = 12
Find: amount (Future value) at the end of the term, F

cash flow in a time diagram

F
R 5,000 5,000 5,000 . . . 5,000 5,000
0 1 2 3 ... 9 10

10 payments
38
Step 4: Convert 0.25% compounded monthly to its
equivalent interest rate for each semi-annual
payment interval.
F1 = F2
divide both side
P=P by P
𝟏 𝟏
𝟐𝒕 6 𝟐 𝒕 raise both side
= by
=
𝟏+¿ −𝟏 solve for the value of

= 0.00125063 = j Note: j =

 Thus, the interest rate per semi-

annual payment interval is 0.00125 or 0.125%
39
Step 5: Apply the formula in finding the future
value of an ordinary annuity using the computed
equivalent rate. Where: R=5,000, n=10, j=0.00125063

Substitute the F= R
given values to

F = 5,000

F=50, 500.67
Thus, the teacher will have a savings
of ₱ 50,500.67 after 5 years.
40
 No..
Mrs. Remoto would like to buy a
television (TV) set payable monthly
for 6 months starting at the end of
the month. How much is the cost of
the TV set if her monthly payment
is ₱3,000 and interest is 10%
compounded semi-annually?
Time limit: approximately 5 minutes
41
 Mrs. Remoto would like to buy a television
(TV) set payable monthly for 6 months starting
at the end of the month. How much is the cost of
the TV set if her monthly payment is ₱3,000 and
interest is 10% compounded semi-annually?
Step 1: List the Given data:
R = ₱3,000, = 0.10m
, = 2
n = 6 payments
Step 2: Identify what is being ask:
cost (present value) at the beginning of
the term P. 42
Step 4: Convert 10% compounded semi-annually to
its equivalent interest rate for each monthly
payment interval.
F1 = F2
divide both side
P=P by P
𝟏 𝟏
𝟏𝟐 𝒕 𝟏𝟐 𝒕 raise both
= side by
6
=
𝟏+¿ −𝟏 solve for the value of

= 0.0081648 = j Note: j =

 Thus, the interest rate per

monthly payment interval is 0.0081648 or 0.816%
43
Step 5: Apply the formula in finding the present
value of an ordinary annuity using the computed
equivalent rate. Where: R=3,000, n=6, j = 0.0081648

Substitute the P= R
given values to
P= 3,000

P=17,496.62
Thus, the cost of the TV set is
₱ 17,496.62 . 44
Where we can
apply the
concepts of
computing the
present and future
values?
45
“How the Future
and Present Value
of annuity affects
your Investment
and loans in the
future?
46
More examples for …

Refer to LM page 183-198

47
Find the FUTURE value F and PRESENT value
P of the following real life situation:
(a) Annual payments of
₱1,000 at the end of each
term for 8 years with
interest rate of 6%
compounded quarterly.
Time limit: approximately 5 minutes
48
 2 point for every Correct Given. 8
2 points in identifying what is being ask. 2
5 points for correct equivalent rates. 5
10 points for correct solution and answer 10
Total =25 points
Given R = ₱1,000
term n = (1)(8)= 8 payments
interest rate per annum = 6% = 0.06
number of conversion per year m = 4
Find: the amount of Future value F at
the end of the term.
49
 Convert 6% compounded quarterly to its
equivalent interest rate for each annual payment
interval.
F1 = F2
divide both side
P=P by P
𝟏 𝟏
𝒕 𝒕 raise both side
= by

=
𝟏+¿ −𝟏 solve for the value of

= 0.061364 = j Note: j =

 Thus, the interest rate per

annual payment interval is` 0.061364 or 6.14%
50
 Apply the formula in finding the future
value of an ordinary annuity using the computed
equivalent rate. Where: R=1,000, n=8, j=0.061364

Substitute the F= R
given values to

F = 1,000

F=9,946.04
Thus, the future value of the annuity
is ₱ 9,946.04 after 8 years.
51
 Apply the formula in finding the present
value of an ordinary annuity using the computed
equivalent rate. Where: R=1,000, n=8, j=0.061364
Substitute the P= R
given values to

P= 1,000

P=6,176.42
Thus, the present value of the
annuity is ₱6,176.42 . 52
 Performance Task No. 2 (2nd Quarter):
Time Frame: until September 21, 2019
For the situation you choose, determine the
interest rate for the period and the annual
interest rate.
For example, if an appliance that costs P15,000 can be
paid in 8 monthly payments of P2,000, then, the formula

15000= 2000

must be satisfied. Experiment with different values for j

to determine the interest rate for the period, and the
annual interest rate. 53
 In getting the general
annuities, always remember
that the higher the length of
the term expressed in
interest period with higher
payment interval, the higher
the general annuities you
can get and vice versa.
54
General Math-S E C O N D Q U A R T E R
Chapter 7: Annuities
Lesson 29: General Annuity
Lesson Topics: [Session 2]
3. Cash value of a cash Flow
PREREQUISITE SKILLS: Knowledge of Simple Annuity
M11GM-IIc-d-1,and d-2
CASH FLOW Cash Flow is a term
refers to payments received
(cash inflows) or payments or
deposits made (cash outflows).
Cash outflows can be
represented by positive numbers
and cash outflows can be
represented by negative
numbers. 56
  Fair Market Value or economic

The fair market value or economic

value of cash flow (payment
stream) on a particular date refers
to a single amount that is equivalent
to the value of the payment stream
at the date. This particular date is
called the focal date.
57
Example 5. Mr. Ribaya received two
offers on a lot that he wants to sell. Mr.
Ocampo has offered P50,000 and P1
million lump sum payments 5 years
from now. Mr. Cruz has offered P50,000
plus P40,000 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?
58
Example 5. Mr. Ribaya received two offers on a lot that he
wants to sell. Mr. Ocampo has offered P50,000 and P1
million lump sum payments 5 years from now. Mr. Cruz
has offered P50,000 plus P40,000 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?
Given:
Mr. Ocampo’s offer Mr. Cruz’s offer
P50,000 down payment P50,000 down payment
P1,000,000 after 5 years P40,000 every quarter for 5
years

Find: Fair market value of each offer

59
Step 1: Illustrate the cash flows of the two offers
using time diagrams.
Mr. Ocampo’s offer:
50,000 . . . 1,000,000
0 1 2 3 ... 20

Mr. Cruz’s offer:

50,000 40,000 40,000 40,000 . . . 40,000
0 1 2 3 ... 20

60
Step 2: Choose a focal date and determine the values of
the two offers at the focal date.
Tip: It is usually convenient to choose focal dates to either be at the start or at
the end of the term

Solution 1. Choose the focal date to be the start of the

term. Since the focal date is at t=0. compute for the
present value of each offer.
Mr. Ocampo’s offer: P= F
Since P50,000 is offered today, then its present value is
still P50,000. The present value of P1,000,000 offered
five years from now is:
P= 1,000,000
= P783,526.17
Fair Market Value (FMV)=50,000+783,526.17
= P833,526.17
61
Mr. Cruz’s offer: Solution 1 (focal date at the start of the term).
Compute for the present value of a general annuity with
quarterly payments but with annual compounding at 5%.
Solve the equivalent rate of 5% compounded annually.

F1 = F2
P =P
=
1+ = -1

0.012272
62
Solution 1 (focal date at the start of the term) continuation…
Mr. Cruz’s offer:
P= R[]
P = 40,000 [ ]
= P705,572.68

Fair Market Value (FMV)=(Downpayment) +(Present value)

= P50,000 + 705,572.68
=P755,572.68
Hence ,Mr. Ocampo’s offer has a higher market value. The
difference between the market values of the two offers at
the start of the term is
833,526.17 - 755,572.68 = P77,953.49
63
Solution 2. Choose the focal date to be at the end of the
term.
Mr. Ocampo’s offer:
At the end of the term, P1,000,000 is valued as such
(because this is the value at t=)
The future value P50,000 at the end of the term at 5%
compounded annually is given by
F= P
F = 50,000
= P63,814.08
Fair Market Value (FMV)=63,814.08+1,000,000
= P1,063,814.08
64
Solution 2 (focal date at the end of the term).
Mr. Cruz’s offer:
The future value of this ordinary annuity is given by:
F= R

F = 40,000 [
= P900,509.40
The future value of P50,000 at the end of the term
is P63,814.08, which was already determined
earlier.
Fair Market Value (FMV)= 63,814.08+900,509.40
= P964,323.48
65
As expected, Mr. Ocampo's offer still has a higher market
value, even if the focal date 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
Mr. Ocampo - Mr. Cruz offer =1,063,814.08-964,323.48
= P99,490.60

You can also check the present value of the

difference is the same as the difference computed
when the focal date was the syart of the terms:

P =99,490.60 (1+0.05)ˉ⁵
= P77,953.49 66
 General annuity is an annuity in which the
payment interval differs from the
compounding interval.
 Ordinary general annuity is a general annuity
in which payments are made at the end of the
payment period with different payment
interval and compounding interval.
 General annuity due is a general annuity in
which payments are made at the beginning of
the payment period with different interval and
compounding interval.67