11th Grade

Basic Concept of
Simple Annuity
November 6-10, 2023
Learning Objectives
At the end of the lesson, students are expected to
be able to:

Define and classify simple and general annuity

Find the future value and present value of simple
ordinary annuity
Solve problems involving simple ordinary
annuity
 01
Introduction
What is Annuity?
Annuity
A sequence of periodic payments paid or
received at equal time intervals.

Examples:
Installment payments, monthly rentals, and life insurance premiums
are annuities
Compound Interest vs Annuity

Compound Interest Annuity

The money is invested or The money is paid in
borrowed all at once and periodic intervals and gains
immediately gains interest interest after 𝑡 years.
after 𝑡 years.
Payment Interval
The period of time between consecutive
payments.

Example:
Ged buys a new smartphone and agrees to pay it via installment. He
will pay ₱1 500 every month for 2 years.

In this case, the payment interval of the annuity is monthly.

Term
The time from the beginning of the first payment
interval to the end of the last payment interval.

Example:
Ged buys a new smartphone and agrees to pay it via installment.
He will pay ₱1 500 every month for 2 years.

In this case, the term of the annuity is 𝟐 years.

 02
Concepts
Kinds of Annuity
Simple Annuity
It is an annuity whose payment interval is the same
as the conversion period.

Example:
Leonard buys a brand-new TV with installment payment at the
end of each month with interest compounded monthly.
General Annuity
It is an annuity whose payment interval is not the
same as the conversion period.

Example:
Sheldon buys a brand-new TV with installment payment at the
end of each quarter with interest compounded annually.
 Activity
Determine if the given situations represent simple annuity or general
annuity

1. Payments are made at the end of each month for a loan that charges
1.05% interest compounded quarterly. General Annuity

2. A deposit of ₱5,500.00 was made at the end of every three months to an

account that earns 5.6% interest compounded quarterly. Simple Annuity

3. Mr. Sarballon pays at the end of every month for a loan that charges 6%
interest compounded monthly. Simple Annuity

4. Ms. Mendoza deposits ₱2,000.00 at the beginning of every month to her

account that earns 4% interest compounded semiannually. General Annuity
 Classification of
Simple Annuity

Ordinary Deferred
Annuity Annuity Due Annuity
Ordinary Annuity

It is an annuity whose periodic payments are made

at the end of each payment interval.

Example:

Sam buys a washing machine with installment payment at the

end of every month for one year.
Annuity Due
It is an annuity whose periodic payments are made at
the beginning of each payment interval.

Example:

Gilly buys a washing machine with installment payment at the

beginning of every month for one year.
Deferred Annuity
It is an annuity in which first payment interval is
delayed or deferred for a period of time. In a
deferred annuity, the time interval to the beginning
of the first payment interval is called the period of
deferral.

Example:
Mary buys a washing machine with quarterly payment to start
after 6 months.
 Helpful Formulas
Required Formula
1− 1+𝑖 −𝑛
Present Value 𝐴=𝑅
𝑖
1+𝑖 𝑛−1
Amount (Future Value) 𝑆=𝑅
𝑖
Periodic Payment given the Amount of 𝑆𝑖
𝑅=
an Ordinary Annuity 1+𝑖 𝑛−1

Periodic Payment given the Present 𝐴𝑖

𝑅= −𝑛
Value of an Ordinary Annuity 1− 1+𝑖
 Notation of Terms
Notation Terminology
𝑅 Periodic Payment
𝐴 Present Value of an Ordinary Annuity
𝑆 Sum of the Amount of an Ordinary Annuity
𝑡 Term of an Annuity
𝑟 Rate of an Annuity
𝑚 Number of Conversion Period
𝑛 Total Number of Conversion Period (given by 𝑛 = 𝑡 ∙ 𝑚)
𝑖 Periodic Rate (given by 𝑖 = 𝑚𝑟 )
 Examples
1 Sam takes out an insurance policy that lets you pay
₱1,000.00 monthly for 7 years. Determine its current
worth if it pays 8.75% interest compounded monthly.
Given: Solution:
−𝑛
𝑛 = 7 ∗ 12 1 − 1 + 𝑖
𝑅 = 1,000 𝐴=𝑅
𝑟 = 0.0875 𝑛 = 84 𝑖
0.0875 −84
𝑚 = 12 0.0875
𝑖= 1− 1+
𝑡=7 12 12
𝐴 = 1000
0.0875
12
Therefore, its current worth is ₱62,646.86. 𝑨 = ₱𝟔𝟐, 𝟔𝟒𝟔. 𝟖𝟔
 Examples
2
Mrs. Santos deposits ₱5,500.00 at the end of every six months in
a savings account for her daughter’s education that pays 8%
interest compounded semi-annually. How much will she have in
her account at the end of 10 years and 6 months?

Given: Solution: 1+𝑖 𝑛−1

𝑅 = 5,500 𝑆=𝑅
𝑛 = 10.5 ∗ 2 𝑖
𝑟 = 0.08 𝑛 = 21 1 + 0.04 21 − 1
𝑚=2 0.08 𝑆 = 5,500
𝑖= = 0.04 0.04
𝑡 = 10.5 2 𝑺 = ₱𝟏𝟕𝟓, 𝟖𝟑𝟎. 𝟔𝟏
Therefore, at the end of 10 years and 6 months,
Mrs. Santos will have ₱175,830.91 in her account.
Examples
3 Rose wishes to have ₱350,000.00 after 3 years to purchase a
second-hand car. How much should she invest at the end of every
three months at 14% compounded quarterly?

Given: Solution: 𝑆𝑖
𝑆 = 350,000 𝑛 =3∗4 𝑅=
1+𝑖 𝑛−1
𝑟 = 0.14 𝑛 = 12 (350,000)(0.035)
𝑚=4 0.14 𝑅=
𝑖= = 0.035 1 + 0.035 12 − 1
𝑡=3 4
𝑹 = ₱𝟐𝟑, 𝟗𝟔𝟗. 𝟑𝟖
Therefore, Rose should invest ₱23,969.38 quarterly
for her to have ₱350,000.00 after 3 years.
Examples
4 Allison bought a new gadget worth ₱22,000.00. She paid a
downpayment of ₱5,700.00 and agreed that the remaining
₱16,300.00 will be paid within 6 years. If payments are made
with an interest rate of 9% compounded monthly, how much is
each payment?

5 A cellular phone is purchased with ₱4,500.00 downpayment and

the balance will be paid monthly at ₱1750.00 for one year. What
is the cash price of the cellular phone if its interest rate is
13% compounded monthly?
 Examples
4 Allison bought a new gadget worth ₱22,000.00. She paid a
downpayment of ₱5,700.00 and agreed that the remaining
₱16,300.00 will be paid within 6 years. If payments are made
with an interest rate of 9% compounded monthly, how much is
each payment?
Given:
𝐴 = 16,300 Solution: 𝐴𝑖
𝑛 = 6 ∗ 12 𝑅=
𝑟 = 0.09 1 − 1 + 𝑖 −𝑛
𝑛 = 72 (16,300)(0.0075)
𝑚 = 12 0.09 𝑅=
𝑡 = 6 𝑖 = 12 = 0.0075 1 − 1 + 0.0075 −72
𝑹 = ₱𝟐𝟗𝟑. 𝟖𝟐
Therefore, Allison will have to pay ₱293.82 monthly.
 Examples
5 A cellular phone is purchased with ₱4,500.00 downpayment and
the balance will be paid monthly at ₱1750.00 for one year. What
is the cash price of the cellular phone if its interest rate is
13% compounded monthly?
Given: Solution: 𝐶𝑃 = 𝐷𝑃 + 𝐴
𝐷𝑃 = 4,500 𝑛 = 1 ∗ 12 1 − 1 + 𝑖 −𝑛
𝑅 = 1,750 𝑛 = 12 𝐶𝑃 = 𝐷𝑃 + 𝑅
𝑖
𝑟 = 0.13 0.13 −12
𝑖= 0.13
𝑚 = 12 12 1− 1+
𝐶𝑃 = 4,500 + 1,750 12
𝑡=1 0.13
Therefore, the cash price of the cellular
12
phone is ₱24,093.07.
𝑪𝑷 = ₱𝟐𝟒, 𝟎𝟗𝟑. 𝟎𝟕
Pair Activity
Problem: Suppose you deposit 1000 pesos in a bank every
end of the third month that pays 5% interest compounded
quarterly. How much money will you have at the end of a
year?

Your Investment

Initial Periodic Periodic Sum at the end of

Period Interest
Balance Rate Payment the period

3rd month 0 0.0125 0 1000 1000

6th month
9th month

12th month
 Part 2

Basic Concept of
Simple Annuity
pt. 2
November 6-10
Learning Objectives
At the end of the lesson, students are expected to
be able to:

Define and classify simple and general annuity

Find the future value and present value of simple
ordinary annuity
Solve problems involving simple ordinary
annuity
 Practice Items
Instructions: During the activity, you are encouraged to go to your
respective scaffold groups. However, this task will be accomplished
independently, but you are welcome to discuss it with your groupmates
and assist one another in answering it. Submit your yellow paper before
the end of class.
I. Complete the table below. Solve for the unknown quantity
in each row. Show your solution. No need to copy the table.
𝑺 𝑨 𝑹 𝒓 𝒎 𝒕

₱𝟏, 𝟓𝟎𝟎 𝟐% 𝟏𝟐 𝟒

₱𝟒, 𝟑𝟎𝟎 𝟓% 𝟒 𝟑

₱𝟑𝟕, 𝟎𝟎𝟎 𝟖% 𝟒 𝟓

₱𝟕𝟖, 𝟗𝟎𝟎 𝟏𝟐% 𝟏 𝟕

₱𝟐𝟏, 𝟒𝟓𝟎 𝟏𝟎. 𝟓% 𝟔 𝟑. 𝟓

II. Answer the following problem. Show the given and solution
1. A cellular phone is purchased with ₱4,500.00 downpayment and
the balance will be paid monthly at ₱1750.00 for one year. What
is the cash price of the cellular phone if its interest rate is
13% compounded monthly?
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. The Castro family buys a car for 876,000. They pay 350,000 down
payment and agree that the balance will be paid within 3 years. If
payments are made at the end of each month and interest is 9%
compounded monthly, how much is each payment?