At the end of the discussion, the students should be able to:

• describe the nature of general annuity;

• determine the present and future value of general
ordinary annuity;
• identify the formula in computing for the preiodic
payment of general ordinary annuity;
• determine the present and future value of general
annuity due; and
• discuss how to find for the periodic payment of general
annuity due.
•
•
•

•
•
•

•
•
 A general annuity is a kind of annuity where the payment
interval is not the same as the interest compounding period.
For example, the annuity is considered a general annuity if
the periodic payment is made at the end of every quarter
but the interest is compounded semi-annually. Likewise, a
periodic payment of an annuity that is made monthly with an
interest compounded quarterly is classified as general
annuity.
 In other words, in a general annuity, the payment interval
does not coincided with the compounding period of the
interest.
Since the payment interval does not coincide with the
compounding period of the interest, there is a need to
determine the following:
1. Total number of interest period
2. Number of payment interval per interest period
Let us denote the following variable as:
𝑛 = Total number of periodic payments
𝑦 = Number of payment interval per interest period

The total number of interest period (n) is the sum of

interest compounding periods multiplied by the terms of the
annuity. Hence, if the interest is compounded monthly and
the term is 5 years, the total number of interest period is
60 (12 x 5).
 The number of payment interval per interest period (y)
is the ratio of payment interval over the compounding
periods. Thus, if the payment is quarterly and the interest is
compounded monthly, the number of payment interval per
interest is 3, that is, 3÷1 = 3. On the other hand, if the
payment interval is monthly and the interest compounding
period is quarterly, the number of payment interval per
interest period is 1/3, that is, 1÷3 = 1/3
 The table below shows how the necessary information is
determined:
Value Factor of y
Terms Payment Interest Number of Payment Total Number
of Interval Compounding Interval per Interest of Periodic
Annuity Period Period ( 𝒚 ) Payments ( 𝒏 )
1 year Monthly Monthly 1 = (1 ÷ 1) 12
1 year Monthly Quarterly 1/3 = (1 ÷ 3) 4

1 year Monthly Semi-annual 1/6 = (1 ÷ 6) 2

1 year Monthly Annually 1/12 = (1 ÷ 12) 1

 The table below shows how the necessary information is
determined:
Value Factor of y
Terms Payment Interest Number of Payment Total Number
of Interval Compounding Interval per Interest of Periodic
Annuity Period Period ( 𝒚 ) Payments ( 𝒏 )
1 year Quarterly Monthly 3 = (3 ÷ 1) 12
1 year Quarterly Quarterly 1 = (3 ÷ 3) 4

1 year Quarterly Semi-annual 1/2 = (3 ÷ 6) 2

1 year Quarterly Annually 1/4 = (3 ÷ 12) 1

 The table below shows how the necessary information is
determined:
Value Factor of y
Terms Payment Interest Number of Payment Total Number
of Interval Compounding Interval per of Periodic
Annuity Period Interest Period ( 𝒚 ) Payments ( 𝒏 )
1 year Semi-annual Monthly 6 = (6 ÷ 1) 12
1 year Semi-annual Quarterly 2 = (6 ÷ 3) 4

1 year Semi-annual Semi-annual 1 = (6 ÷ 6) 2

1 year Semi-annual Annually 1/2 = (6 ÷ 12) 1

 In general ordinary annuity, the periodic payment
is made at the end of the interest payment interval.
However, under this case, the interest period does
not coincide with the payment interval.
 To find the present value of the general ordinary annuity
where the number of payment interval (y) is an integer, the
formula is:
−𝑛
𝐴 1 − (1 + 𝑖)
𝑃= 𝑦 ∙
(1 + 𝑖) −1 𝑖
𝑖
 If the number of payment interval (y) is a fraction, the
formula is:
−𝑛
𝐴 1 − (1 + 𝑖)
𝑃= 1ൗ ∙
1+𝑖 𝑦 −1 𝑖
𝑖
Integer: Fraction:
−𝑛 −𝑛
𝐴 1 − (1 + 𝑖) 𝐴1 − (1 + 𝑖)
𝑃= 𝑦 ∙ 𝑃= 1ൗ ∙
(1 + 𝑖) −1 𝑖 1+𝑖 𝑦−1 𝑖
𝑖 𝑖
where:
P = Present value of general ordinary annuity
A = General ordinary annuity payment
i = Periodic interest rate
n = Total number of interest period
y = Number of payment intervals per interest period
 Find the present value of an annuity of ₱1,000 payable at the end of
every 6 months for 2 years, if money is worth 10% compounded quarterly.

Given:
General ordinary annuity payment (A) = ₱1,000
Periodic interest rate (i) = 2.5%
Total number of interest period (n) =8
Number of payment intervals per interest period (y) = 2 = (6÷3)
Present value of general ordinary annuity (P) =?
 −𝑛
𝐴 1 − (1 + 𝑖)
𝑃= 𝑦 ∙
(1 + 𝑖) −1 𝑖
𝑖
1,000 1 − (1 + 0.025)−8
𝑃= 2 ∙
(1 + 0.025) −1 0.025
0.025
𝑃 = ₱3,540.81

This means that a fund of ₱3,540.81 should be established now at 10%

compounded quarterly to satisfy the ₱1,000 requirements at the end of
every 6 months for 2 years. In a 2-year period, there are 4 payment
intervals for a period of 2 years.
 Let us go further by proving whether the present value of ₱3,540.81 at
10% compounded quarterly to satisfy the ₱1,000 requirements at the end of
every 6 months for 2 years.
To prove, the presentation may appear as follows:
Amount established at the beginning ₱3,540.81
Interest for quarter 1 (3,540.81 x 10% x 3/12) 88.52
Total ₱3,629.33
Interest for quarter 2 (3,629.33 x 10% x 3/12) 90.73
Total ₱3,720.06
st
Less: Payment – 1 payment interval 1,000.00
Beginning balance period 2 ₱2,720.06
Interest for quarter 3 (2,702.06 x 10% x 3/12) 68.00
Total ₱2,788.06
Interest for quarter 4 (2,788.06 x 10% x 3/12) 69.70
Total ₱2,857.76
nd
Less: Payment – 2 payment interval 1,000.00
Beginning balance period 3 ₱1,857.76
Interest for quarter 5 (1,857.75 x 10% x 3/12) 46.44
Total ₱1,904.20
Interest for quarter 6 (1,904.20 x 10% x 3/12) 47.61
Total ₱1,951.81
Less: Payment – 3rd payment interval 1,000.00
Beginning balance period 4 ₱951.81
Interest for quarter 7 (951.81 x 10% x 3/12) 23.80
Total ₱976.61
Interest for quarter 8 (976.61 x 10% x 3/12) 24.39
Total ₱1,000.00
Less: Payment end – 4th payment interval 1,000.00
Ending balance od period 4 ₱ -
 The tabular presentation proves that the periodic requirements
every 6 months for 2 years have been complied with through an
initial amount that has been set up at ₱3,540.81 with 10% interest
compounded quarterly.
In case the payment interval per interest period (y) is a
fraction, use the second formula.
 To find the future value of the general ordinary annuity
where the number of payment interval (y) is an integer, the
formula is:
𝑛
𝐴 (1 + 𝑖) −1
𝐶= 𝑦 ∙
(1 + 𝑖) −1 𝑖
𝑖
If (y) is a fraction, the formula is:

𝑛
𝐴 1+𝑖 −1
𝐶= 1ൗ ∙
1+𝑖 𝑦 −1 𝑖
𝑖
Integer: Fraction:
𝐴 (1 + 𝑖)𝑛 −1 𝐴 𝑛
1+𝑖 −1
𝐶= 𝑦 ∙ 𝐶= 1ൗ ∙
(1 + 𝑖) −1 𝑖 1+𝑖 𝑦 −1 𝑖
𝑖 𝑖
where:
C = Future value of general ordinary annuity
A = General ordinary annuity payment
i = Periodic interest rate
n = Total number of interest period
y = Number of payment intervals per interest period
 Find the future value of an annuity of ₱1,000 payable at the end of
every 6 months for 2 years, if money is worth 10% compounded quarterly.

Given:
General ordinary annuity payment (A) = ₱1,000
Periodic interest rate (i) = 2.5%
Total number of interest period (n) =8
Number of payment intervals per interest period (y) = 2 = (6÷3)
Future value of general ordinary annuity (C) =?
 𝐴 (1 + 𝑖)𝑛 −1
𝐶= 𝑦 ∙
(1 + 𝑖) −1 𝑖
𝑖
8
1,000 (1 + 0.025) −1
𝐶= 2 ∙
(1 + 0.025) −1 0.025
0.025
𝐶 = ₱4,314.13

This means that a periodic payment or deposit of ₱1,000 every end of 6

months at 10% compounded quarterly will accumulate to ₱4,314.13 at the end
of 2 years.
 Again, let us perform some repetitive mathematical process to prove
that a periodic deposit of ₱1,000 every end of 6 months at 10%
compounded quarterly will accumulate to ₱4,314.13 at the end of 4 periodic
deposits.
Annuity payment end period 1 ₱1,000.00
Interest for period 1 -
Total – 1st periodic payment interval ₱1,000.00
Interest for quarter 1 (1,000 x 10% x 3/12) 25.00
Total ₱1,025.00
Interest for quarter 2 (1,025x 10% x 3/12) 25.63
Total ₱1,050.63
Annuity payment end of period 2 1,000.00
Total – 2nd periodic payment interval ₱2,050.63
Interest for quarter 3 (2,050.63 x 10% x 3/12) 51.27
Total ₱2,101.90
Interest for quarter 4 (2,101.90 x 10% x 3/12) 52.55
Total ₱2,154.45
Annuity payment end of period 3 1,000.00
Total – 3rd periodic payment interval ₱3,154.45
Interest for quarter 5 (3,154.45 x 10% x 3/12) 78.85
Total ₱3,233.30
Interest for quarter 6 (3,233.31 x 10% x 3/12) 80.83
Total ₱3,314.13
Annuity payment end of period 4 1,000.00
Total end of period 4 ₱4,314.13
 If the present value is given, the periodic payment of a general
ordinary annuity is computed using the formula:
𝑦
𝑃 (1 + 𝑖) −1
𝐴= −𝑛 ∙
1 − (1 + 𝑖) 𝑖
𝑖
where:
P = Present value of general ordinary annuity
A = General ordinary annuity payment
i = Periodic interest rate
n = Total number of interest period
y = Number of payment intervals per interest period
 The cost of a play machine was ₱3,540. It was purchased on credit
payable every end of 6 months for 2 years. If money was worth 10%
compounded quarterly, find the periodic payment to settle the account.
Given:
Present value of general ordinary annuity (P) = ₱3,540
Periodic interest rate (i) = 2.5%
Total number of interest period (n) =8
Number of payment intervals per interest period (y) = 2 = (6÷3)
General ordinary annuity payment (A) =?
 𝑦
𝑃 (1 + 𝑖) −1
𝐴= −𝑛 ∙
1 − (1 + 𝑖) 𝑖
𝑖
3,540 (1 + 0.025)2 −1
𝐴= −8 ∙
1 − (1 + 0.025) 0.025
0.025
𝐴 = ₱1,000 (rounded off)
It can be observed that the computed periodic payments of general
annuity amounting to ₱1,000 tallies with the periodic payments in Problem 1.
 If the future value is given, the formula to compute the periodic
payment of a general ordinary annuity is:
𝑦
𝐶 (1 + 𝑖) −1
𝐴= 𝑛 ∙
(1 + 𝑖) −1 𝑖
𝑖
where:
C = Future value or amount of general ordinary annuity
A = General ordinary annuity payment
i = Periodic interest rate
n = Total number of interest period
y = Number of payment intervals per interest period
 The cost to repair a personal computer 2 years from now is ₱4,314. How
much should be deposited every end of 6 months for 2 years if money
earns 10% compounded quarterly in order to accumulate the amount for
repair?
Given:
Future value of general ordinary annuity (C) = ₱4,314
Periodic interest rate (i) = 2.5%
Total number of interest period (n) =8
Number of payment intervals per interest period (y) = 2 = (6÷3)
General ordinary annuity payment (A) =?
 𝑦
𝐶 (1 + 𝑖) −1
𝐴= 𝑛 ∙
(1 + 𝑖) −1 𝑖
𝑖
4,314 (1 + 0.025)2 −1
𝐴= 8 ∙
(1 + 0.025) −1 0.025
0.025
𝐴 = ₱1,000 (rounded off)
Notice that the ₱1,000 periodic payment every end of 6 months for
2 years at 10% compounded quarterly is equal to the given amount
in Problem 2.
 The concept of general annuity due is similar to ordinary
annuity due, since in both types of annuities, the periodic
payment is made at the beginning of the payment interval.
However, in a general annuity due. The payment interval does
not coincide with the interest compounding period.
 If the number of payment interval (y) is an integer, the
formula is:
−𝑛
𝐴 1 − (1 + 𝑖)
𝑃= −𝑦 ∙
1 − (1 + 𝑖) 𝑖
𝑖
 If the number of payment interval (y) is a fraction, the
formula is:
−𝑛
𝐴 1 − (1 + 𝑖)
𝑃= ∙
−1ൗ𝑦 𝑖
1− 1+𝑖
𝑖
Integer: Fraction:
−𝑛
𝐴 1 − (1 + 𝑖)−𝑛 𝐴 1 − (1 + 𝑖)
𝑃= ∙ 𝑃= ∙
1 − (1 + 𝑖) −𝑦 −1ൗ𝑦 𝑖
𝑖 1− 1+𝑖
𝑖 𝑖

where:
P = Present value of general annuity due
A = General ordinary annuity payment
i = Periodic interest rate
n = Total number of interest period
y = Number of payment intervals per interest period
 Find the present value of ₱2,000 paid at the beginning of every quarter
for 1 year at 12% compounded monthly.

Given:
General ordinary annuity payment (A) = ₱2,000
Periodic interest rate (i) = 1.0%
Total number of interest period (n) = 12
Number of payment intervals per interest period (y) =3
Present value of general annuity due (P) =?
 𝐴 1 − (1 + 𝑖)−𝑛
𝑃= −𝑦 ∙
1 − (1 + 𝑖) 𝑖
𝑖
−12
2,000 1 − (1 + 0.01)
𝑃= −3 ∙
1 − (1 + 0.01) 0.01
0.01
𝑃 = ₱7,653.95

This means that ₱7,653.95 is the needed funds at the beginning of a

period with 12% interest compounded monthly in order to meet the quarterly
periodic requirements for 1 year at the beginning of every quarter.
 To prove, the tabular presentation may appear as follows:
Amount of funds at the beginning ₱7,653.95
Less: Periodic payment beginning of period 1 2,000.00
Balance ₱5,653.95
Interest for month 1 (5,653.95 x 12% x 1/12) 56.54
Total ₱5,710.49
Interest for month 2 (5,710.49 x 12% x 1/12) 57.10
Total ₱5,767.59
Interest for month 3 (5,767.59 x 12% x 1/12) 57.68
Total ₱5,825.27
Less: Periodic payment beginning of period 2 2,000.00
Balance ₱3,825.27
Interest for month 4 (3,825.27 x 12% x 1/12) 38.25
Total ₱3,863.52
Interest for month 5 (3,863.52 x 12% x 1/12) 38.64
Total ₱3,902.16
Interest for month 6 (3,902..16 x 12% x 1/12) 39.02
Total ₱3,941.18
Less: Periodic payment beginning of period 3 2,000.00
Balance ₱1,941.18
Interest for month 7 (1,941.18 x 12% x 1/12) 19.41
Total ₱1,960.59
Interest for month 8 (1,960.59 x 12% x 1/12) 19.61
Total ₱1,980.20
Interest for month 9 (1,980.20 x 12% x 1/12) 19.80
Total ₱2,000.00
Less: Periodic payment beginning of period 4 2,000.00
th
Balance after the 4 quarterly payments ₱ -
 The tabular presentation shows that an initial amount of
₱7,653.95 at 12% compounded monthly for 1 year can meet
the ₱2,000 periodic requirements every beginning of a
quarter.
 If (y) is an integer, the formula to determine the future
value of the general annuity due is:

𝑛
𝐴 (1 + 𝑖) −1
𝐶= −𝑦 ∙
1 − (1 + 𝑖) 𝑖
𝑖
If (y) is a fraction, the formula is:

𝑛
𝐴 1+𝑖 −1
𝐶= ∙
−1ൗ𝑦 𝑖
1− 1+𝑖
𝑖
Integer: Fraction:
𝐴 (1 + 𝑛
𝑖) −1 𝐴 1+𝑖 𝑛−1
𝐶= −𝑦 ∙ 𝐶= ∙
1 − (1 + 𝑖) 𝑖 −1ൗ𝑦 𝑖
1− 1+𝑖
𝑖 𝑖
where:
C = Future value of general annuity due
A = General ordinary annuity payment
i = Periodic interest rate
n = Total number of interest period
y = Number of payment intervals per interest period
 Find the future value of an annuity of ₱2,000 payable at the beginning
of every 6 months for 1 year, if money is worth 12% compounded quarterly.

Given:
General ordinary annuity payment (A) = ₱2,000
Periodic interest rate (i) = 3.0%
Total number of interest period (n) =4
Number of payment intervals per interest period (y) = 2
Future value of general annuity due (C) =?
 𝑛
𝐴 (1 + 𝑖) −1
𝐶= −𝑦 ∙
1 − (1 + 𝑖) 𝑖
𝑖
4
2,000 (1 + 0.03) −1
𝐶= −2 ∙
1 − (1 + 0.03) 0.03
0.03
𝐶 = ₱4,372.82

This means that an annuity of ₱2,000 every beginning of 6 months for 1

year at 12% compounded quarterly will accumulate to ₱4,372.82.
 The long process would be as follows:
Annuity payment beginning – period 1 ₱2,000.00
Interest for quarter 1 (2,000 x 12% x 3/12) 60.00
Total ₱2,060.00
Interest for quarter 2 (2,060 x 12% x 3/12) 61.80
Total ₱2,121.80
Annuity payment beginning – period 2 2,000.00
Total ₱4,121.80
Interest for quarter 3 (4,121.80 x 12% x 3/12) 123.65
Total ₱4,245.45
Interest for quarter 4 (4,245.45 x 12% x 3/12) 127.37
Total ₱4,372.82
 The formula to determine the periodic payment of general
annuity due if the present value is given is:
−𝑦
𝑃 1 − (1 + 𝑖)
𝐴= −𝑛 ∙
1 − (1 + 𝑖) 𝑖
𝑖
where:
P = Present value of general annuity due
A = General ordinary annuity payment
i = Periodic interest rate
n = Total number of interest period
y = Number of payment intervals per interest period
 The water dispenser was selling at ₱7,654. Jocelyn bought it on
installment basis, payable every beginning of a quarter for 1 year. The first
installment payment was made on the date of purchase which was at the
beginning of a quarter. If money was worth 12% compounded monthly, find
the periodic payment made to fully settle the account in 1 year’s time.
Given:
Present value of general annuity due (P) = ₱7,654
Periodic interest rate (i) = 1.0%
Total number of interest period (n) = 12
Number of payment intervals per interest period (y) = 3
General ordinary annuity payment (A) =?
 −𝑦
𝑃 1 − (1 + 𝑖)
𝐴= −𝑛 ∙
1 − (1 + 𝑖) 𝑖
𝑖
−3
7,654 1 − (1 + 0.01)
𝐴= −12 ∙
1 − (1 + 0.01) 0.01
0.01
𝐴 = ₱2,000
This means that Jocelyn paid ₱2,000 every beginning of a quarter for 1
year. It can be noticed that the periodic payment required tallies with the
given data in Problem 5. We use the same sets of data in the illustration to
show the relationship of the formulas on the present value and periodic
general annuity due.
 If the future value is given, the formula to compute the periodic
payment of general annuity due is:
−𝑦
𝐶 1 − (1 + 𝑖)
𝐴= 𝑛 ∙
(1 + 𝑖) −1 𝑖
𝑖
where:
C = Future value of general annuity due
A = General ordinary annuity payment
i = Periodic interest rate
n = Total number of interest period
y = Number of payment intervals per interest period
One year from now, Angel needs ₱4,373 to purchase one unit of cell phone.
How much should she deposit in a fund every beginning of 6 months for 1
year if money is worth 12% compounded quarterly?
Given:
Future value of general annuity due (C) = ₱4,373
Periodic interest rate (i) = 3.0%
Total number of interest period (n) =4
Number of payment intervals per interest period (y) = 2
General ordinary annuity payment (A) =?
 −𝑦
𝐶 1 − (1 + 𝑖)
𝐴= 𝑛 ∙
(1 + 𝑖) −1 𝑖
𝑖
−2
4,373 1 − (1 + 0.03)
𝐴= 4 ∙
(1 + 0.03) −1 0.03
0.03
𝐴 = ₱2,000
This means that Angel needs to deposit ₱2,000 every beginning of 6
months for 1 year at 12% compounded quarterly in order to raise the
needed amount of ₱4,373 on the expected date.