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Lesson 6 - Simple Annuity

The document is a set of concept notes on basic business mathematics covering simple annuities. It defines key terms like annuity, payment interval, simple annuity, general annuity, and presents formulas to calculate the future value and present value of simple annuities. Several examples are provided to demonstrate solving for the future value and present value of simple annuities given periodic payments, interest rates, and time periods. Exercises are included at the end to solve for the present value and amount of additional annuity problems.

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Sophia San Juan
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155 views3 pages

Lesson 6 - Simple Annuity

The document is a set of concept notes on basic business mathematics covering simple annuities. It defines key terms like annuity, payment interval, simple annuity, general annuity, and presents formulas to calculate the future value and present value of simple annuities. Several examples are provided to demonstrate solving for the future value and present value of simple annuities given periodic payments, interest rates, and time periods. Exercises are included at the end to solve for the present value and amount of additional annuity problems.

Uploaded by

Sophia San Juan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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ARELLANO UNIVERSITY

Juan Sumulong Campus


2600 Legarda St., Sampaloc, Manila
SENIOR HIGH SCHOOL DEPARTMENT
School Year 2021 - 2022
-

NAME: _____________________________ DATE:________________________


GRADE & SECTION:___________________ TEACHER:_____________________

CONCEPT NOTES 6
I. TOPIC: BASIC BUSINESS MATHEMATICS: Simple Annuity
II. LEARNING GOAL: The students should be able to:
a. define simple annuity.
b. illustrate simple and general annuities.
c. distinguish between simple and general annuities.
d. solve the future and present values of simple annuities.

III. CONCEPTS

 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.
 General annuity - an annuity where the payment interval is not the same as the interest
period.
According to time payment
 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.
 Term of an Annuity (t) – time between the first payment interval and last payment
interval.
 Regular or Periodic Payment (R) - amount of each payment.
 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.
Formulas:
(𝟏 + 𝒋)𝒏 − 𝟏
𝑭=𝑹
𝒋
𝟏 − (𝟏 + 𝒋) 𝒏
𝑷=𝑹
𝒋
Examples:
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:
𝑅 = 200 𝑚 = 12 𝑖 ( ) = 0.250 % → 0.0025
0.0025
𝑗= = 0.0002083 𝑡 = 6 𝑛 = 72 𝑝𝑒𝑟𝑖𝑜𝑑𝑠
12
Solution:

48 | S H S M A T H E M A T I C S D E P A R T M E N T
ARELLANO UNIVERSITY
Juan Sumulong Campus
2600 Legarda St., Sampaloc, Manila
SENIOR HIGH SCHOOL DEPARTMENT
School Year 2021 - 2022
-

(1 + 𝑗) − 1
𝐹=𝑅
𝑗

(1 + 0.0002083) −1
𝐹 = 200
0.0002083

𝐹 = 14,507.02
Hence, Marie will be able to save P14, 507.02 for her graduation.

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:
𝑅 = 300 𝑚 = 12 𝑖( )
= 0.09
0.09
𝑗= = 0.0075 𝑡=6 𝑛=6
12
Solution:

1 − (1 + 𝑗)
𝑃=𝑅
𝑗

1 − (1 + 0.0075)
𝑃 = 3000
0.0075

𝑃 = 17,537.79
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?
𝐷𝑜𝑤𝑛 𝑝𝑎𝑦𝑚𝑒𝑛𝑡 = 200,000 𝑅16,200 𝑚 = 12 𝑖 ( ) = 0.105
0.105
𝑗= = 0.00875 𝑡 = 5 𝑛 = 𝑚𝑡 = 12(5) = 60 𝑃𝐸𝑅𝐼𝑂𝐷𝑆
12
Find: Cash value or cash price of the car
Solution:

1 − (1 + 𝑗)
𝑃=𝑅
𝑗

1 − (1 + 0.00875)
𝑃 = 16,200
0.00875

𝑃 = 753,702.20
Cash value = Down payment + present value
= 200, 000 +753,702.20
= 953,702.20
The cash price of the car is P953,702.20

49 | S H S M A T H E M A T I C S D E P A R T M E N T
ARELLANO UNIVERSITY
Juan Sumulong Campus
2600 Legarda St., Sampaloc, Manila
SENIOR HIGH SCHOOL DEPARTMENT
School Year 2021 - 2022
-

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?
Given:
𝑃 = 100,000 𝑚 = 1 𝑖 ( ) = 0.08
𝑗 = 0.08 𝑡 = 3 𝑛 = 3
Find: Periodic payment R
Solution:

1 − (1 + 𝑗)
𝑆𝑖𝑛𝑐𝑒 𝑃=𝑅
𝑗
1 − (1 + 𝑗)
𝑅 = 𝑃/
𝑗

1 − (1 + 0.08)
𝑅 = 100,000/
0.08

𝑅 = 38,803.35
Thus, the man should pay P38, 803.35 every year for 3 years

IV. EXERCISES
Directions: 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.

50 | S H S M A T H E M A T I C S D E P A R T M E N T

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