Genmath Las Week2
Genmath Las Week2
Department of Education
REGION IV-A CALABARZON
SCHOOLS DIVISION OF BATANGAS
Pansol Integrated National High School
Learning Competencies:
1. Illustrate simple and general annuities
2. Distinguish between simple and general annuities
3. Computes the future value, present value, and periodic payment of simple annuity
INTRODUCTION :
In most cases where house or cars are purchased, a series of payments is needed at certain points in time. Such
transaction is called ANNUITY.
This lesson will tackle first the definition and types of annuities and the difference between simple and
compound annuities. There are types of annuity according to correspondence of payment intervals with interest
periods.
Annuities may be classified in different ways, as follows.
Annuities
According to payment interval Simple Annuity - an annuity General Annuity - an
and interest period where the payment intervals annuity where the payment
is the same as the interest intervals is not the same as
period the interest period
The time between the successive payments dates of an annuity is called the payment interval.
The time between the first payment interval and last payment interval is called term of the annuity (t).
The sum of the future values of all the payments to be made during the entire term of the annuity is the future
value or the amount of an annuity (F).
The sum of the present values of all payments to be made during the entire term of the annuity is called the
present value of n annuity (P)
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DEVELOPMENT:
SIMPLE ANNUITY
Simple Annuity - the payment interval is also the same as the interest period
Example 1. ₱ 50,000 deposited every year for 5 years at 8% per year compounded annually.
Solution: Notice that ₱ 50,000 was deposited every year and it is compounded
annually. Since the compounding period is similar to the payment interval, then
this is a type of simple annuity.
The cash flow of the given situation can be illustrated in the time diagram below:
Period 0 1 2 3 4 5
The future value of all the payments at the end of term (t=5).
Period 0 1 2 3 4 5
(Year )
₱ 50 ,000
₱ 50 ,000 (1.08)1
₱ 50,000 (1.08) 2
₱ 50,000 (1.08) 3
₱ 50,000 (1.08) 4
Add all the future values obtained from the previous step.
₱ 50,000.00 = ₱ 50,000
₱ 50,000(1.08)1 = ₱ 54,000
₱ 50,000(1.08)2 = ₱ 58,320
₱ 50,000(1.08)3 = ₱ 62,985.60
₱ 50,000(1.08)4 ₱ 68,024.45
Total ₱ 293,329.45
General annuity refers to an annuity where the length of the payment interval is not the
same as the length of the interest compounding period.
Example : Find the amount of annuity of ₱700 every 6 months (½ year) for 12 years if
interest is 6% compounded monthly. (SOLUTION WILL BE PRESENTED ON THE NEXT
MODULE)
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Activity 1. “SIMPLEHAN LANG MUNA!” Part 2
I. Read each problem carefully and tell whether each of the given information describes a simple annuity or
general annuity. Have Fun!
a. Monthly payments of ₱ 3,000 for 4 years with interest rate of 3% compounded monthly.
Type of Annuity: ________________
b. Quarterly payment of ₱ 5,000 for 10 years with interest rate of 2% compounded semi-
annually.
c. Monthly payments of ₱ 2,000 for 5 years with interest rate of 12% compounded annually.
Type of Annuity: ________________
ENGAGEMENT :
How much will I earn?
You decided to join a Kabataan Savers Club which aims for financial growth of the youth
nowadays. If you pay ₱1,000.00 at the end of each year for 5 years on account that pays
interest at 5 % compounded annually, how much money will you have after 5 years?
The future value of an annuity is the total accumulation of the payments and interest
earned. The present value of an annuity is the principal that must be invested today to
provide the regular payment of an annuity.
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( mr )
i−¿ periodic rate i= ( mr )
i−¿ periodic rate i=
t−¿ time (in years) t−¿ time (in years)
Example 1.
In this case, with the example presented, we can answer the following questions. (1) Since
the interest conversion is equal or the same as the payment interval so we will use simple
annuity.
R = ₱1,000.00 t= 5 r = 0.05 m
=1
0.05
i = =¿ 0.05
1
n = 1(5) =5
Step 2: Since we will find the amount of money after 40 years, we will use the formula:
Example 2.
Contrast in calculating the future value, a present value (PV) tells you how much money
would be required now to produce a series of payments in the future, again assuming a set
interest rate.
0.05
i = =¿ 0.05
1
n = 1(5) =5
Since we are looking for the present value, we use the formula
As you can notice, future value is higher than the present value. This is because of the time
value of money—the concept that any given sum is worth more now than it will be in the
future because it can be invested in the present.
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Definition. The cash value or cash price is equal to the down payment (if there is any)
plus the present value of the installment payments.
Example 3.
Mr Angeles paid ₱200,000.00 as a down payment for a car. The remaining amount is to be
settled by paying ₱ 6,200.00 by the end of each month in 5 years. If interest is 10.5%
compounded monthly, what is the cash price of his car?
n= 60
R= ₱16,200.00
Obtain the present value of the car by plugging the given in our formula
To get the cash value, simply add the obtained present value and the down payment made,
so;
Example 4.
Mr. Edgar borrowed from his friend ₱ 200,000.00 He promised to pay the amount plus its
interest by an equal amount of money each year for 3 years. What must be his annual
payment if they agreed on an interest of 10% compounded annually?
This example is different from the examples presented above. This time, you are going to
compute the Regular periodic payment. We will be manipulating the formula of present value
to obtain the formula for the periodic payment.
Given:
P= ₱ 200,000.00
t= 3 m=1
i=0.10
n=3
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Mr Edgar must pay ₱ 80,422.96 every year .
ASSIMILATION:
YOU CAN DO IT!
A. Complete the sentence below. Write your answers on a separate sheet of paper.
B. Answer the following problems. Show your complete solutions. Have Fun!
1. Find the Present Value (P) and the Future Value (F) of quarterly payments of ₱ 2,000.00 for 5 years with
interest rate of 8% compounded quarterly.
2. In order 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?
3. A certain fund currently has P100,000 and is invested at 3% interest compounded annually. How much
withdrawal can be made at the end of each year so that the fund will have zero balance at the end of 12
years?
Hint: State the given. Identify which formula to be used. Substitute the value to the formula.
Rubric:
Criteria 25 points 20 points 15 points 10 points 5 points
CORRECTNESS 96% TO 100% 75% TO 95% 50% TO 74% 25% TO 49% 0% TO 24% of
of the given of the given of the given of the given the given
solutions are solutions are solutions are solutions are solutions are
correct correct correct correct correct
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