A B C D E F G H I J K

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ANNUITY
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SIMPLE ANNUITY
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OBJECTIVES:
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At the end of the lesson, the grade 11 students should be able to:
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7 1. Identify the components of a simple annuity, including the payment

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amount, interest rate, and time period;
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2. Demonstrate accuracy and efficiency in computing annuity values
11 and related financial metrics;
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3. Show appreciation to the importance of financial planning by trying
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14 to create savings plan.

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What is
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Annuity?
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Annuity
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a sequence of payments made at equal
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(fixed) intervals or periods of time.
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Payment interval - the time between successive
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payments (monthly (12), quarterly (4), semi- annual
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(2), annually (1) )
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4 Classification of annuity
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Simple Annuity
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- an annuity where the payment
7 interval is the same as the interest
8 period
9 General Annuity
10 - an annuity where the payment
11 interval is not the same as the
12 period
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 A B C D E F G H I J K

4 Classification of annuity
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Ordinary Annuity (Annuity Immediate)
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- a type of annuity in which the
7 payments are made at the end of
8 each payment interval.
9 Annuity Due
10 - a type of annuity in which the
11 payments are made at the
12 beginning of each payment interval.
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 A B C D E F G H I J K

3 Determine whether it is Simple Annuity or General Annuity

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Installment payment for an appliance at the end of each
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month with interest compounded monthly
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Installment payment for an appliance at the end of each
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month with interest compounded annually
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 A B C D E F G H I J K

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Annuities
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Simple General
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Installment payment for an Installment payment for an
10 appliance at the end of each appliance at the end of each
11 month with interest compounded month with interest
monthly
12 compounded annually
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 A B C D E F G H I J K

3 Determine whether it is Simple Annuity or General Annuity

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7 Anna intends to borrow money as capital for her business. To pay it

8 off she will pay ₱3,000 at the end of every month for 6 years. The
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money is compounded by 5% quarterly.
10 Jean plans to save money for the future. She will set aside ₱5,000 at
11 the end of every 3 months and put it on an investment company
12 where her money will grow by 3.5% quarterly. She will do this for 30
years
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Annuities
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Simple General
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Jean plans to save money for the future. Anna intends to borrow money as capital for
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She will set aside ₱5,000 at the end of her business. To pay it off she will pay ₱3,000
10 every 3 months and put it on an at the end of every month for 6 years. The
investment company where her money money is compounded by 5% quarterly.
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will grow by 3.5% quarterly. She will do
12 this for 30 years

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 A B C D E F G H I J K

4 ● In a simple annuity the

5 payment interval is the same
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as the interest period while in
a general annuity the payment
7 Remember: interval is not the same as the
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interest period.
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Future value of a Simple Annuity
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F = future value
R = periodic payment (regular payment)
6 m = frequency of conversion
7 i (m) = nominal rate
t = term / time in years
8 j = nominal interest rate
n = number of payments in the annuity
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since j and 𝑛 = 𝑚𝑡 then

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 A B C D E F G H I J K

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Future value of a Simple Annuity
5 Suppose Mrs. Santos would like to save ₱3,000 at the end of each month, for six
months, in a fund that gives 6% compounded monthly. How much is the amount or
6 future value of her savings after 6 months?
7 Given:
R = ₱3,000
8 m =12
i(m) = 0.06
9 t = 6 months

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( 1+ 0.005 ¿6 −1
11 j= = = 0.005 𝐹 =3000
12 0.005
n = mt
13 n =(12)(0.5)= 6

14 F = ₱18, 226.506
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Future value of a Simple Annuity
5 To buy a car in about 5 years, Peter saves ₱1,500 per month. How much will he have
accumulated at the end of 5 years if he manages to earn a rate of 9% compounded
6 monthly on his savings?
7 Given:
R = ₱1,500
8 m =12
i(m) = 0.09
9 t = 5 years

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j= = = 0.0075
( 1+0 .0075 ¿6 0 −1
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𝐹 =1500
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n = mt
n =(12)(5)= 60 0.00 7 5
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14 F = ₱113,136.21
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Present value of a Simple Annuity
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F = Future value
P = present value
6 R = periodic payment (regular payment)
7 m = frequency of conversion
i (m) = nominal rate
8 t = term / time in years
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10 P= or P = or P = F(1 + J)-n
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Present value of a Simple Annuity
5 Find the present value and the amount of an ordinary annuity of P5,000 payable
6 semi-annually for 10 years if money is worth 6 % compounded semi-annually.
7 Given:

8 R = 5,000 P=
m =2
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i = 6% = 0.06
(m)
( 1+0.03 ¿20 − 1
10 t = 10 years
j = 0.03
𝐹 =5000
0.03 P=
11 n = 20
12 F=134,351.87
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P = ₱74,387.3748
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SEATWORK
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Financial Futures: Design Your Savings Roadmap

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5 You will save money from you allowance,

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let’s say for 3 years. Every month, you
8 will deposit your savings to a bank, and it
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will earn 5% interest compounded
11 monthly.
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Find the total amount you will acquire
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14 after three years based on your savings.

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SHORT QUIZ
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3 Find the present value of the ordinary annuity

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5 below.
6 a. Quarterly payments of P2000 for 5
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years with interest rate compounded
9 quarterly.
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b. Semi-annual payments of P8000 for
12 12 years with interest rate
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compounded semi-annually.
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3 ASSIGNMENT:
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Answer the problem.
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Find the rate per period and the nominal rate
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9 compounded monthly at which payments of

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11 165 every month will amount to 25,000 in 3

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13 years.
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