PILGRIM CHRISTIAN COLLEGE

Capistrano-Akut Sts., Cagayan de Oro City

High School Department
S.Y. 2020-2021

LEARNING MODULE #8
General Mathematics

Simple and General Annuities

Name: _________________________ Subject: GENERAL MATHEMATICS

Teacher: _______________________ Grade and Section: _____________
Quarter: ________________________ Week date: ___________________

OVERVIEW

This module will help you gain knowledge about annuities (simple and general annuity in particular). This
will allow you to understand about the time value of money with interest and everything associated with
it and the correct way of computing the maturity value of your savings or loan.

OBJECTIVES

After going through this module, you are expected to:

a. Illustrates simple and general annuities.

b. Distinguishes between simple and general annuities.
c. Finds the future value and present value of both simple and general annuities.
d. Shares the importance of learning to compute for the future value and present value of both
simple and general annuities.

LET’S CHECK

Direction: Answer the following exercises: (Show your solutions)

1. Find the maturity value and the compound interest if Php 30 000 is compounded quarterly at an
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interest rate of 2 % in 5 years.
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2. Ana must pay Php 10 000 to pay an obligation of Php 8 000 at 3% compounded monthly. When
should the payments be given?

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 LET’S EXPLORE

Direction: Study the following situation then answer the questions that follow.

Mr. and Mrs. Cruz are planning to have their own home but have limited budget. They went to a home
developer for some advice as to how the down payment will be produced for their chosen house and lot.
This is the advice of the developer. To raise the amount of the down payment of the house and lot at the
end of 5 years, you will invest Php 23 000 at the end of each year for five years in an account that pays
8.5% compounded annually.

To find the down payment needed, give the values of the following:

𝑅 = ____________ 𝑖 (1) = ____________ 𝑚 = ____________

𝑡 = ____________ 𝑗 = ____________

The situation above requires you to find the amount (future value at the end of the term) F:

The diagram below will help you answer of the questions that follow.

Calculate the amount to which the first Php 23, 000 will grow using the compound interest.
Formula: 𝐹 = 𝑃(1 + 𝑗)𝑛
a. Calculate the amount to which the Php 23,000 will grow using the compound interest formula:
𝐹 = 𝑃(1 + 𝑗)𝑛
𝐹 = 23,000(1 + 0.085)4
b. Calculate the amount to which the second Php 23, 000 will grow using the compound interest
formula: 𝐹 = 𝑃(1 + 𝑗)𝑛
𝐹 = 23,000(1 + 0.0075)3
c. Calculate the amount to which the third Php 23, 000 will grow using the compound interest
formula.

d. Calculate the amount to which the fourth Php 23, 000 will grow using the compound interest
formula.

e. Find the total of the separate Php 23, 000 investments. Include the last Php 23,000 in the sum.
1. Discuss the pattern shown in number 2 to get the total amount of investments.
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2. What is the total amount to be invested by Mr. and Mrs. Cruz to produce the down payment
of their chosen house and lot?

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 LET’S ENGAGE

ANNUITIES

Payments by installment are done periodically, and in equal amounts. This payment scheme is called
annuity.

Examples: Employees Salary Pension

Loans Insurance payments
Tuition fees …

Definition of Terms

• Annuity - a sequence of payments made at equal (fixed) intervals or Periods of time.

• Payment Interval – the time between successive payments.
• Amount (Future Value) of an annuity (F) – sum of future values of all the payments to be made
during the entire term of the annuity.
• Present value of an annuity (P) – sum of present values of all the payments to be made during
the entire term of the annuity.
• Regular of Periodic payment (R) – the amount of each payment.
• Term of annuity (t) – time between the first payment interval and the last payment interval.

Annuities may be classified in different ways, as follows.

Different Ways of Classifying

Annuities
Annuities

Simple annuity – an annuity General Annuity – an annuity

According to payment interval where the payment interval is where the payment interval is
and interest period the same as the interest period. not the same as the interest
period.

Ordinary Annuity (or Annuity Annuity Due – a type of annuity

Immediate) – a type of annuity in which payments are made at
According to time of payment
in which payments are made at the beginning of each payment
end of each payment interval interval.

Annuity Certain – an annuity in Contingent Annuity – an annuity

which payments begin and end in which the payments extend
According to duration
at definite times. over an indefinite (or
indeterminate) length of time.

Simple Annuity

• Is an annuity in which the number of compounding periods per year coincides with the number
of annuity payments per year

Formula for future value (F): Formula for present value (P):

(1 + 𝑖)𝑛 − 1 1 − (1 + 𝑖)−𝑛
𝐹 = 𝐴[ ] 𝑃 = 𝐴[ ]
𝑖 𝑖

Where: F = Future value of annuity

P = Present value of annuity

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 A = Annuity or amount of regular payments or deposits
𝑟
𝑖 = 𝑚 = interest rate per period

N = number of regular payments or deposits

Examples:

1. Suppose Marie Perez, a high school student, would like to save Php 5,000 every year in a fund
that gives 10% compounded annually. How much is the amount of future value of her savings
after 4 years?

Given: A = 5,000; i = 10% or 0.10; n=4

Solution: We can use the formula for the future value of annuity.
(1 + 𝑖)𝑛 − 1
𝐹 = 𝐴[ ]
𝑖
(1 + 0.10)4 − 1
𝐹 = 5,000 [ ] = 23,205
0.10

Answer: The amount of her savings after 4 years is Php 23,205.

2. How much money should you invest today in an account that earns 5% compounded annually
in order to withdraw Php 10,000 every year for 4 years?

Given: A = 10,000; i = 5% or 0.05; n=4

Solution: We can use the formula for the present value of annuity.
1 − (1 + 𝑖)−𝑛
𝑃 = 𝐴[ ]
𝑖
1 − (1 + 0.05)−4
𝑃 = 10,000 [ ] = 35,459.50
0.05
Answer: The amount you should invest today is Php 35,459.50.

General Annuity

• Is an annuity in which the annuity payments and compounding periods do not coincide.

Formula for future value (F): Formula for present value (P):

(1 + 𝑖)𝑛 − 1 1 − (1 + 𝑖)−𝑛
𝐹 = 𝐴[ ] 𝑃 = 𝐴[ ]
𝑖 𝑖

Where: F = Future value of annuity

P = Present value of annuity
A = Annuity or amount of regular payments or deposits
𝑖 = equivalent interest rate per payment interval.
N = number of regular payments or deposits
Note: There is an extra step that occurs in finding i. The given interest rate per period must be
converted to equivalent rate per payment interval.

Examples:

1. Supposed Sheila, a college student, would like to save Php 5,000 every year in a fund that
gives 10% compounded semi-annually. How much is the amount or future value of her savings
after 4 years if the deposits are made every end of the year?

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 Given: A = 5,000; n = 4; 𝑖𝑒𝑓𝑓(𝑎) = 𝑖𝑒𝑓𝑓(𝑠.𝑎.)
(1 + 𝑖𝑎 )𝑚𝑎 − 1 = (1 + 𝑖𝑠.𝑎. )𝑚𝑠.𝑎 − 1
0.10 2
(1 + 𝑖𝑎 )1 = (1 + )
2
1 + 𝑖𝑎 = 1.1025
𝑖𝑎 = 0.1025

Solution: We can use the formula for the future value of annuity.

(1+𝑖)𝑛 −1
𝐹 = 𝐴[ 𝑖
]

(1+0.1025)4 −1
𝐹 = 5,000 [ 0.1025
] = 23,290.51

Answer: The amount of her savings after 4 years is Php 23,290.51.

2. How much money should you invest today in an account that earns 5% compounded semi-
annually in order to withdraw Php 10,000 every year for 4 years?
Given: A = 10,000; n = 4; 𝑖𝑒𝑓𝑓(𝑎) = 𝑖𝑒𝑓𝑓(𝑠.𝑎.)
(1 + 𝑖𝑎 ) − 1 = (1 + 𝑖𝑠.𝑎. )𝑚𝑠.𝑎 − 1
𝑚𝑎

0.05 2
(1 + 𝑖𝑎 )1 = (1 + )
2
1 + 𝑖𝑎 = 1.050625 use at least 6
𝑖𝑎 = 0.050625 → decimal places when
dealing with long
decimal numbers
Solution: We can use the formula for the present value of annuity.
1 − (1 + 𝑖)−𝑛
𝑃 = 𝐴[ ]
𝑖
1 − (1 + 0.050625)−4
𝑃 = 10,000 [ ] = 35,408.25
0.050625
Answer: The amount that you should invest is Php 35,408.25.

LET’S DO THE WRAP-UP

Direction: Identify if the following annuity is simple or general annuity. Then, compute for the future
value of the following annuity.

___________1. Monthly payments of Php 3,000 for 4 years with interest rate of 3% compounded
monthly.

___________2. Quarterly payment of Php 5,000 for 10 years with interest rate of 9 % compounded
annually.

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___________3. Semi-annual payments of Php 12,500 with interest rate of 10.5% compounded semi
-annually for 6 years.

___________4. Daily payments of Php 20 for 30 day with interest rate of 20% compounded annually.

LET’S TRY

Direction: Compute for the present value of the following annuity.

1. Semi-annual payments of Php 150,000 with interest rate of 8% compounded annually

for 10 years.

2. Monthly payments of Php 2,000 for 5 years with interest rate of 12 percent
compounded monthly.

3. Quarterly payment of Php 15,000 for 10 years with interest rate of 8% compounded
quarterly.

4. Annual payments of Php 20,500 with interest rate 8.5% compounded semi-annually for
10 years.

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 LET’S EVALUATE

Answer the problem below. Show your solution.

1. How much is the monthly amortization on an automobile loan of Php 900, 000 to be amortized
over a 5-year period at a rate 9.5% compounded monthly?

2. In order to save for her high school graduation, Marie decided to save Php 200 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. Teacher Kaye is saving Php 2,000 every month depositing it in a bank that gives an interest of 1%
compound quarterly. How much will she save in 5 years?

4. Vladimir purchased a new car for Php 99,000 down payment and Php 15,000 every month. If the
payments are based on 7% compounded quarterly what is the total cash price of his car?

LET’S REFLECT

Measurement of Faith
(Matthew 17:20)

He said to them, “Because of your little faith. For truly, I say to you, if you have faith
like grain of mustard seed, you will say to this mountain, ’Move from here to there,’
and it will move, and nothing will be impossible for you.”

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ADDITIONAL ACTIVITIES

Discuss the importance of to compute for the future value and present value of both simple and general
annuities.

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REFERENCES

Printed Materials

• Garces, Ian June L., et al (2016) General Mathematics, Vibal Group Inc. pp 77 – 85.
• Aljas, Ludita S., et al (2019) General Mathematics- Grade 11 Module 7 Annuities, DepEd
Philippines, pp 1 – 46.