General Annuity

General Mathematics
Lesson Objectives
At the end of the lesson, the students must be
able to:
• find the future value and present value of
general annuities;
• determine the amount of general annuity; and
• determine the regular payment (P) of general
annuity.
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.
Amount and Present Value of an Annuity

- Donna plans 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 by
making equal quarterly payments.
Amount and Present Value of an Annuity

- Samson plans to make equal monthly

withdrawals from his ₱1,000,000 retirement
income fund.
Simple and General Annuities
In simple annuity, the interest conversion
period is equal or the same as the payment
interval.

A general annuity is an annuity wherein the

interest conversion period is unequal or not the
same as the payment interval
 General Ordinary Annuity
Present Value of General Ordinary Annuity
1  (1  i ) 
n

PV  P  
(1  i )  1
b

 
Future Value of General Ordinary Annuity

 (1  i )  1
n

FV  P  
 (1  i )  1
b
 General Ordinary Annuity
Where:
P = regular payment
i = rate per conversion period
r annual rate
i
K no. of conversion periods in a year

n = number of conversion periods for the whole

termp (n = t · K, where t is the term of an annuity)
b = c where p is the number of months in a
payment interval and c is the number of
months in a compounding period.
 Sample 1
Find the present value of an ordinary annuity of
₱2,000 payable annually for 9 years if the money
is worth 5% compounded quarterly.

Solution
Given: P = ₱2,000.00
n = 9 · 4 = 36
r 5% or
i 
0.0125 K 4
Solution for Sample 1
c=3
p = 12
b= p 12
 4
c 3
1  (1  i ) 
n

PV  P  
 (1  i )  1
k
Solution for Sample 1
= 2 000 1  (1  0.0125) 
 36

 (1  0.0125)  1
4
 

= ₱14,155.99
 Present Value of General Annuity Due

Present Value of General Annuity Due

1  (1  i )   i 
n

PV  P     i
 i   (1  i )  1 
b

Future Value of General Annuity Due

 (1  i )  1  i 
n

FV  P     i
 i   (1  i )  1 
b
 Present Value of General Annuity Due

where:
PV = Present Value
FV = Future Value
P= Annuity Payment
i = rate per compounding period
r annual rate
i
K no. of conversion periods in a year
 Present Value of General Annuity Due

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
b= p
c
Sample 2
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 for Sample 2

P = ₱10 000.00 c=6
t = 10 years p=3
K=2 p 3 b= or

0.5 c 6
Solution for Sample 2
n = 10(2) = 20
i = r  6% or 0.03
K 2

1  (1  i )   i 
n

PV  P     i
 i   (1  i )  1 
b
Solution for Sample 2
= 10,000 1  (1  0.03)   0.03 
 20

 0.03   (1  0.03)  1  0.03

0.5

  
= 10,000(14.87747486)(2.014889157 + 0.03)
= ₱304 227.87
 Regular Payment (P) of General Annuity

For General Annuity

 (1  i ) k  1   (1  i ) k  1 
P  PV  n  P  FV  
1  (1  i ) 
n
 (1  i )  1

b
Sample 3
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 for Sample 3
Given:
PV = ₱1,000,000.00 p=1
n = t · K = 15 · 2 = 30 c=6
r 8% or 0.04
i 
K 2

 (1  i ) k  1 
P  PV  n 
1  (1  i ) 
Solution for Sample 3
 
1

(1  0.04)  1 
6

 1000000 
1  (1  0.04) 30 
 
= ₱9,481.53
Exercise A
The present value of an annuity of ₱5,000 every
end of 3 months for 10 years when the interest
rate is 4% compounded annually is ₱164,631.30.
Use the given situation to give the values of the
following variables:
Exercise A
1. P =
6. i =
2. t =
7. c =
3. K =
8. p =
4. n =
9. b =
5. r =
10. PV =
Exercise B
Amy and Susan each makes regular deposits into
an annuity. Amy deposits ₱2,000.00 at the end
of each month at 6% compounded quarterly.
Susan deposits ₱6,000 at the end of each
quarter at 6% compounded monthly. Who will
have the greater amount at the end of 5 years?
Explain using the calculated amount.