SIMPLE

ANNUITY

GENERAL MATHEMATICS
LESSON 4
 HELLO

WELC OM E
PREPARE THE FOLLOWING:

Notebook Pens Calculators

 OB J ECTI VE S
At the end of the session, 80% of the learners should be
able to;
a. illustrate simple annuity and annuity due;
b. solve the future value and present value of simple
annuity and annuity due; and
c. compute problem involving simple annuity and
annuity due.
 M OTI VATION
 
Direction: Convert the following:
1
 

1. 1. 14 months= ______ year

 6

2. 198 days= ______ months

6
 

3. 150 hours= ______ days

4. 2 years =______
27 months

5. 1 years = ______ days

420
 “SIMPLE ANNUITY”
• Annuity – a sequence of payment made at equal (fixed) intervals or
periods of time.

• Payment Interval – the time between successive payments.

According to payment interval and interest periods

• Simple Annuity – an annuity where the payment interval is the same

as the interest
period.

• Ordinary Annuity or Annuity Immediate – the payments are made at

the end of each
payment interval.

• Annuity Due - the payments are made at the beginning of each

payment interval.
 𝑛
  ( 1+ 𝑗 ) −1 P 
𝐹= 𝑅
𝑗
• Amount of an Annuity (F) – sum of the future values of all the payments to be made
during the entire term of the annuity.

• Present Value of an Annuity (P) - sum of the present values of all the payments to be
made during the entire term of the annuity.

• Regular or Periodic Payment (R) - amount of each payment.

• Rate (r) - annual rate, usually in percent, charged by the lender, or rate of increase of
the investment.

• Frequency of conversion (m) - number of conversion periods in one year.

• Term of an Annuity (t) – time between the first payment interval and last payment
interval

Formula:

  𝑟
𝑗=   n
𝑚
EXAMPLE
1. For her to save for her high School graduation, Marie decided to save
P200 at the end of each month, If the bank pays 0.250 % compounded
monthly, how much will her money be at the end of 6 years?

 GIVEN: ( 1+ 𝑗 )𝑛 −1
 
FORMULA: 𝐹= 𝑅
𝑗
R = ₱200   ( 1+ 0.0002083333 )72 −1
m = 12 𝐹 =200
0.0002083333
r = 0.250% or 0.0025
t=6 𝐹=₱ 14 , 507.00
 

j = = 0.0002083333
n = tm = (6)(12) = 72 periods
EXAMPLE
2. Suppose Mr. Alvin would like to save P3000 at the end of each
month, for six months in a fund that gives 9 % compounded monthly.
How much is the amount or future value of her savings after 6 months?

 GIVEN:
P 
FORMULA:
R = ₱3000 P 
m = 12
r = 9% or 0.09 P 
t = 6 months =
j = = 0.0075
n = tm = (0.5)(12) = 6 periods
EXAMPLE
3. Mr. Ribaya paid P200, 000 as down payment for a car. The remaining
amount is to be settled by paying P16, 200 at the end of each month for 5 years.
If interest is 10.5 % compounded monthly, what is the cash price of his car?

 GIVEN:
P 
FORMULA:
R = ₱16,200 P 
m = 12
r = 10.5% or 0.105 P 
t = 5 years
j = = 0.00875
n = tm = (5)(12) = 60 periods Cash value = Down payment + Present value
Cash
  value = 200,000 + 753,702.20
Cash
  value = 953, 702.20
EXAMPLE
4. Paolo borrowed P100, 000. He agrees to pay the principal plus interest by
paying an equal amount of money each year for 3 years. What should be his
annual payment if interest is 8 % compounded annually?
P 
 GIVEN: FORMULA:
1 − ( 1+ 𝑗 ) − 𝑛
  𝑅  
𝑃 𝑗
=
P = ₱100,000 1 − ( 1 + 𝑗 )− 𝑛
𝑗
1 − ( 1 + 𝑗 )− 𝑛
𝑗
m=1
  R= OR   R =P
r = 8% or 0.08
t = 3 years   R = 100,000
j = = 0.08
n = tm = (3)(1) = 3 periods
R 
 “Annuity Due”
 •
Amount of an Annuity Due () - the payments are
made at the beginning of each payment interval.
 
( 1+ 𝑗 )1+𝑛 − 1
𝑆 𝑑𝑢𝑒 = 𝑅[ 𝑗
−1 ]
 •
Present Value of Annuity Due ()
  1 −𝑛
1 − ( 1+ 𝑗 )
𝐴𝑑𝑢𝑒 = 𝑅 [ 𝑗
+1 ]
EXAMPLE
1. Nathalie deposited ₱7,500 in her account at the beginning of each
three months at 6% compounded quarterly. How much will be in her
account on August 17, 2015 if she makes her first deposit in August 17,
2012.
 GIVEN: ( 1+ 𝑗 )1+𝑛 − 1
 
FORMULA: 𝑆 𝑑𝑢𝑒 = 𝑅
𝑗[ −1 ]
R = ₱7,500 ( 1+0.015 )1+12 − 1
m=4
r = 6% or 0.006
 
𝑆 𝑑𝑢𝑒 =₱7,500 [
0.015
−1 ]
t = 3 years
 𝑆 𝑑𝑢𝑒 =₱ 99 , 276.22
j = = 0.015
n = tm = (3)(4) = 12 periods
EXAMPLE
2. How much should be deposited in an account at the beginning of
each quarter in order to have ₱95,000 after 5 years at 12.5%
compounded quarterly?

 GIVEN: 𝑆 𝑑𝑢𝑒 ( 𝑗)
 
[
FORMULA: 𝑅 = ( 1+ 𝑗 )𝑛+1 − 1 − 𝑗 ]
= ₱95,000 ₱ 95,000 
m=4
r = 12.5% or 0.125
 
𝑅=
[
( 1+ 0.03125 )20+1 − 1− 0.03125 ]
t = 5 years
 𝑆 𝑑𝑢𝑒 =₱ 3,384.99
j = = 0.03125
n = tm = (5)(4) = 20 periods
EXAMPLE
 3.
What is the present value of an annuity due whose semi-annual
payment is

 GIVEN: 1 − ( 1+ 𝑗 )
1 −𝑛

FORMULA:
 
𝐴𝑑𝑢𝑒 = 𝑅 [ 𝑗
+1 ]
R = ₱13,5000 1 − ( 1+0.04 )1− 14
m=2
 
𝐴𝑑𝑢𝑒 = ₱ 13,5000 [ 0.04
+1 ]
r = 8% or 0.08
t = 7 years
 𝐴 𝑑𝑢𝑒 =₱ 148,306.25
j = = 0.04
n = tm = (7)(2) = 14 periods
EXAMPLE
4. Roger buys a television for ₱45,600. He pays ₱15,000 down payment
and pays the balance is 12 equal monthly payments at the beginning of
each month. If interest is 12% compounded monthly, how much is each
payment?
 GIVEN: 𝐴 𝑑𝑢𝑒 ( 𝑗)

= ₱45,000 - ₱15,000 = ₱30,600

 
[
FORMULA: 𝑅 = 1− ( 1+ 𝑗 )1 −𝑛 + 𝑗 ]
  ( ₱ 30,600)(0.01)  
m = 12
r = 12% or 0.12
𝑅=
[ 1− ( 1+ 0.01 )
1−( 12)( 1)
+ 0.01]
t = 1 year
j = = 0.01
n = tm = (1)(12) = 12 periods
R 
 AC TIVI TY
Direction: Answer the following problem by showing your complete
solutions.

1. What is the present value of an simple annuity with 24 quarterly

payments of 1,250 each if the interest if 9% compounded quarterly.

2. To save for a child’s education a family invests 3,400 at the end of each
three-month period in a fund paying 10% compounded quarterly. How
much money will be in the fund at the end of 10 years?

3. What is the present value of an annuity due whose monthly payment is

3,500 for 4 years if money is worth 12% compounded monthly?

4. Gerry agrees to make semi-annual payment of 12,400 at the beginning of

each 6 months to discharge a debt due in 4 years. If money is worth 10%
compounded semi-annually, how much does he owe?
 QUI Z
 Direction: Solve the present value P, and amount F of the following ordinary
annuities.

1. Quarterly payments of P2000 for 5 years with interest rate of 8 %

compounded quarterly.

2. Semi-annual payments of P8000 for 12 years with interest rate of 12 %

compounded semi-annually.

3. Daily payments of P50 for 30 days with interest rate of 20 % compounded

daily.

4. Find the amount of an annuity due of 4,800 payable at the beginning of

every 6 months for 3 years at 11% compounded semi-annually.
S E E Y O U O N N E X T P R E S E N TAT I O N

THAN K YOU