General Mathematics

Quarter 2 – Module 4:
Simple and General Annuities

CO_Q2_General Mathematics SHS

Module 4
General Mathematics – Senior High School
Alternative Delivery Mode
Quarter 2 – Module 4: Simple and General Annuities
First Edition, 2021

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General Mathematics
Quarter 2 – Module 4:
Simple and General Annuities
Introductory Message

This Self-Learning Module (SLM) is prepared so that you, our dear learners,
can continue your studies and learn while at home. Activities, questions,
directions, exercises, and discussions are carefully stated for you to understand
each lesson.

Each SLM is composed of different parts. Each part shall guide you step-by-
step as you discover and understand the lesson prepared for you.

Pre-tests are provided to measure your prior knowledge on lessons in each

SLM. This will tell you if you need to proceed on completing this module or if you
need to ask your facilitator or your teacher’s assistance for better understanding of
the lesson. At the end of each module, you need to answer the post-test to self-
check your learning. Answer keys are provided for each activity and test. We trust
that you will be honest in using these.

In addition to the material in the main text, Notes to the Teacher are also
provided to our facilitators and parents for strategies and reminders on how they
can best help you on your home-based learning.

Please use this module with care. Do not put unnecessary marks on any
part of this SLM. Use a separate sheet of paper in answering the exercises and tests.
And read the instructions carefully before performing each task.

If you have any questions in using this SLM or any difficulty in answering
the tasks in this module, do not hesitate to consult your teacher or facilitator.

Thank you.
 What I Need to Know

One of the dreams of every Filipino family is to purchase a house where they
can comfortably live. However, most often they cannot afford to purchase such
property in cash. One of the options to realize their dreams is to purchase it on
an installment basis. In this situation, the concept of annuities is being used.

In this learning module, learners should be able to investigate and analyze

problems involving simple and general annuities. This module was designed
and written with you in mind. It is here to help you identify and distinguish
simple and general annuities.

After going through this module, you are expected to:

1. define terms that are related to simple and general annuities;
2. illustrates and distinguishes simple and general annuities; and
3. represent annuities to real-life situations.

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Lesson
Simple and General
1 Annuities

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

Simple Annuity - the payment interval is also the same as the interest period.

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

What’s In

REMEMBER ME
As the saying goes, “A person who does not remember where he came from will
never reach his destination”. This saying is very popular, passing from one
generation to another generation. For you to remember the previous lesson,
here are some exercises to refresh your mind.

Activity 1
Answer each of the following.

1. If ₱40,000 is invested for 6 years at 5% compounded quarterly.

A. Give the value of the following using the formula � = � 1 + � � �ℎ��� � =
�
�
��� � = ��
1. P=______________
2. r=______________
3. i=_______________
4. n=______________

B. Find the compound amount.

Solution:

Answer:

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 C. Find the compound interest

Solution:

Answer:

2. ₱ 20,000 is invested for 15 years at 5 % compounded semi-annually.

A. Give the value of each variable using the formula � = � 1 + � �
�
�ℎ��� � = ��� � = ��
�
1. P=____________
2. r=_____________
3. i=_____________
4. n=_____________

B. Find the compound amount.

Solution:

Answer:

C. Find the compound interest.

Solution:

Answer:

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 What’s New

WISE DECISION

Mr. and Mrs. De Dios are planning to buy a new house despite of their limited
budget. They seek advice from a bank for them to produce enough amount for
the down payment of the house they have chosen.

According to the bank if ₱ 20,000 will be invested at the end of each year for 5
years in an account that pays interest at 10% compounded annually the couple
will be able to have the amount for down payment.

If there are 3 houses for sale offering a 10% down payment of the price which
among these 3 houses is the best choice?
House A – ₱850,740
House B – ₱1,221,020
House C – ₱2,110,000

For you to be able to determine the total amount of investment for the period of
5 years, you need to complete the table below.

Calculate the amount to which the first to the fourth period ₱ 20,000.00 will
grow using the compound interest formula.

Period Amount in Exponential Form Amount in Pesos

1 ₱20,000(1.01)4 ₱ 29,282 [No space]

2
3
4
5 ₱20,000 ₱ 20,000
Total =

Note: The ₱ 20,000 deposited at the end of the first year will draw interest for 4
years, so it will amount to ₱20,000(1.01)4 . The ₱20,000 deposited at the end of
the second year will draw interest for 3 years so it will amount to ₱20,000(1.01)3 ,
and so on.

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1. What pattern will be reflected in the 2nd column of the table? Discuss.
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2. Using the pattern found in number 1, calculate the sum of the amounts in
the third column.

3. Given the answer in number 2, what will be the best house suited to the
investment made by Mr. and Mrs. De Dios? Explain.
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What is It

The activity in the What’s New involves fixed payment/investment for each
period (₱ 20,000 at the end of each year) and fixed compound interest rate over
a specified time; that in this case is 10% compounded annually for 5 years.

If the payment for each period is fixed and the compound interest rate is fixed
over a specified time the payment is called an annuity payment. Accounts
associated with streams of annuity payments are called annuities.

Annuity - a sequence of payments made at equal (fixed intervals or periods of

time.
The following are examples of annuities:
 Rental payment
 Monthly pensions
 Monthly payment for car loan
 Educational plan

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Annuities may be classified in different ways, as follows.
Annuities
According to payment Simple Annuity - an General Annuity - an
interval and interest annuity where the annuity where the
period payment intervals is the payment intervals is not
same as the interest the same as the interest
period period
According to time of Ordinary Annuity (or Contingent Annuity -
payment Annuity Immediate) - a an annuity in which the
type of annuity in which payments extend over
the payments are made an indefinite (or
at the end of each indeterminate) length of
payment interval time
According to duration Annuity Certain - an Contingent Annuity -
annuity in which an annuity in which the
payments begin and end payments extend over
at definite times an indefinite (or
indeterminate) length of
time

In the activity, the payment is made at the end of each period. Such annuity is
called an ordinary annuity.

Each payment in an annuity is called the periodic payment (R).

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).

Annuities may be illustrated using a time diagram. The time diagram for an
ordinary annuity is given below.

Time Diagram for an n-Payment Ordinary Annuity

R R R R R… R

0 1 2 3 4 5 n

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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:

Payment ₱ 50,000 ₱ 50,000 ₱ 50,000 ₱ 50,000 ₱ 50,000

Period 0 1 2 3 4 5

The future value of all the payments at the end of term (t=5).

Payment ₱ 50,000 ₱ 50,000 ₱ 50,000 ₱ 50,000 ₱ 50,000

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
1
₱ 50,000(1.08) = ₱ 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 ₱ 293,330.05 ₱ 293,330.05

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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.

Examples of General annuity:

1. Monthly installment of a car, lot or house with an interest rate that is
compounded annually.
2. Paying a debt semi-annually when the interest is compounded monthly.

Example 2: Find the amount of annuity of ₱700 every 6 months (½ year) for 12
years if interest is 6% compounded monthly.

Solution: Here, the payment interval (½ year) is different than the

interest period (annual). This is a general annuity.

We must match the interest period to the payment interval.

We must find the semi-annual rate that is equivalent to 6%,

compounded monthly.

Step 1: Using the formula � = � 1 + � � , find the value of ₱1 invested at

6%, compounded monthly after 1 year.
12
� = 1 1 + 0.005 Note: I = 0.06/12 = 0.005, n = 12

= 1.061677812

Step 2: Let the equivalent ½ year rate be i% (Note the equivalent yearly
rate would be 2i%). Now find the value of ₱1 invested at i% per ½ year
after 1 year.
2
�=1 1+� Note: n = 2, the number of times interest is
compounded

Step 3: These two amounts must be equal. Hence

2
1+� = 1.061677812

1+ i = 1.061677812 = 1.030377509

i= 0.030377509 or 3.0377509% (per ½ year)

Therefore, the equivalent ½ year rate is 3.0377509%

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Now, we can illustrate the cash flow:

Payment ₱ 700 ₱ 700 ₱700 … ₱ 700

Period 0 1 2 3 … 24

The future value of all the payments at the end of term (t=24).

Payment ₱ 700 ₱ 700 ₱ 700 … ₱ 700

Period 0 1 2 3 … 24
(Year)
₱ 700

₱ 700(1.030377509)21

₱ 700(1.030377509)22

₱ 700(1.030377509)23

Add all the future values obtained from the previous step.
= ₱ 700 + ₱ 700(1.030377509)+ ₱ 700(1.030377509)2 +⋯+ ₱ 700(1.030377509)23
= ₱ 24,212.83

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 What’s More

Activity 1.1
Read each problem carefully and tell whether each of the given information
describes a simple annuity or general annuity. Complete the diagram that
follows. Have Fun!

a. Monthly payments of ₱ 3,000 for 4 years with interest rate of 3% compounded

monthly.

Type of Annuity: ________________

Class flow in the time diagram:

Payment …

Period

0 1 2 3 …

b. Quarterly payment of ₱ 5,000 for 10 years with interest rate of 2%

compounded semi-annually.

Type of Annuity: ________________

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Diagram:

Payment …

Period 0 1 2 3 …

Activity 1.2
Identify the type of annuity in the given situations below then show the
illustration of the cash flow.
a. Monthly payments of ₱ 2,000 for 5 years with interest rate of 12%
compounded annually.

b. Yearly payment of ₱15,000 for 10 years with interest rate of 8%

compounded annually.

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 What I Have Learned

A. Please read the sentences carefully and fill in the missing word/s by writing
your answer on the line/s provided.
1. A sequence of payments made at equal (fixed) intervals or periods of time
is called ____________.
2. Each payment in an annuity is called ______________.
3. The time between the successive payments dates of an annuity is called
the ____________.
4. In simple annuity the payment interval is also the same as the
_______________.
5. In general annuity the interest conversion or compounding period is
____________ with the payment interval.

B. Give at least three examples of real-life situations in your locality that shows
annuity.
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C. Enumerate and describe the different types of annuities.

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D. Being aware with the two types of annuities help you in different
transactions that you will encounter in the future. What are the advantages
and disadvantages of these annuities?
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 What I Can Do

Read and analyze the situation below then answers the question given.

Your mom asked your opinion if she will be joining the cooperative in her office.
She wants to know the amount of money she will be receiving after 6 months
and wanted to buy something in December. The cooperative wants her to
contribute ₱1,000 per month beginning in June 2020 which will earn 3%
compounded monthly. How much will be the future value of your mom’s
contribution at the end of December 2020?

Tasks:
You need to prepare a report showing a cash flow diagram on the total amount
of money your mother will earn at the end of December. At the end of your
report, write a conclusion stating your opinion to help your mom to decide.

Cash Flow Diagram

Conclusion:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

Rubrics:
5-States a conclusion with complete and appropriate justification, based on a
reasonable interpretation of the data.
4-States a conclusion with enough justification, based on a reasonable
interpretation the data.
3-States a conclusion with some justification, based on a reasonable
interpretation of the data.
2-States a conclusion on a reasonable interpretation of the data.
1-The conclusion is based on an unreasonable interpretation of the data.

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