ARELLANO UNIVERSITY

Juan Sumulong Campus

2600 Legarda St., Sampaloc, Manila
SENIOR HIGH SCHOOL DEPARTMENT
School Year 2021 - 2022
-

NAME: _____________________________ DATE:________________________

GRADE & SECTION:___________________ TEACHER:_____________________

CONCEPT NOTES 6
I. TOPIC: BASIC BUSINESS MATHEMATICS: Simple Annuity
II. LEARNING GOAL: The students should be able to:
a. define simple annuity.
b. illustrate simple and general annuities.
c. distinguish between simple and general annuities.
d. solve the future and present values of simple annuities.

III. CONCEPTS

 Annuity – a sequence of payment made at equal (fixed) intervals or periods of time.

 Payment Interval – the time between successive payments.
According to payment interval and interest periods
 Simple Annuity – an annuity where the payment interval is the same as the interest
period.
 General annuity - an annuity where the payment interval is not the same as the interest
period.
According to time payment
 Ordinary Annuity or Annuity Immediate – the payments are made at the end of each
payment interval.
 Annuity Due - the payments are made at the beginning of each payment interval.
 Term of an Annuity (t) – time between the first payment interval and last payment
interval.
 Regular or Periodic Payment (R) - amount of each payment.
 Amount of an Annuity (F) – sum of the future values of all the payments to be made
during the entire term of the annuity.
 Present Value of an Annuity (P) - sum of the present values of all the payments to be
made during the entire term of the annuity.
Formulas:
(𝟏 + 𝒋)𝒏 − 𝟏
𝑭=𝑹
𝒋
𝟏 − (𝟏 + 𝒋) 𝒏
𝑷=𝑹
𝒋
Examples:
For her 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?
Given:
𝑅 = 200 𝑚 = 12 𝑖 ( ) = 0.250 % → 0.0025
0.0025
𝑗= = 0.0002083 𝑡 = 6 𝑛 = 72 𝑝𝑒𝑟𝑖𝑜𝑑𝑠
12
Solution:

48 | S H S M A T H E M A T I C S D E P A R T M E N T
 ARELLANO UNIVERSITY
Juan Sumulong Campus
2600 Legarda St., Sampaloc, Manila
SENIOR HIGH SCHOOL DEPARTMENT
School Year 2021 - 2022
-

(1 + 𝑗) − 1
𝐹=𝑅
𝑗

(1 + 0.0002083) −1
𝐹 = 200
0.0002083

𝐹 = 14,507.02
Hence, Marie will be able to save P14, 507.02 for her graduation.

2. Suppose Mr. Alvin would like to save P3000 at the end of each month, for six months
in a fund that gives 9 % compounded monthly. How much is the amount or future value
of her savings after 6 months?
Given:
𝑅 = 300 𝑚 = 12 𝑖( )
= 0.09
0.09
𝑗= = 0.0075 𝑡=6 𝑛=6
12
Solution:

1 − (1 + 𝑗)
𝑃=𝑅
𝑗

1 − (1 + 0.0075)
𝑃 = 3000
0.0075

𝑃 = 17,537.79
3. Mr. Ribaya paid P200, 000 as down payment for a car. The remaining amount is to be
settled by paying P16, 200 at the end of each month for 5 years. If interest is 10.5 %
compounded monthly, what is the cash price of his car?
𝐷𝑜𝑤𝑛 𝑝𝑎𝑦𝑚𝑒𝑛𝑡 = 200,000 𝑅16,200 𝑚 = 12 𝑖 ( ) = 0.105
0.105
𝑗= = 0.00875 𝑡 = 5 𝑛 = 𝑚𝑡 = 12(5) = 60 𝑃𝐸𝑅𝐼𝑂𝐷𝑆
12
Find: Cash value or cash price of the car
Solution:

1 − (1 + 𝑗)
𝑃=𝑅
𝑗

1 − (1 + 0.00875)
𝑃 = 16,200
0.00875

𝑃 = 753,702.20
Cash value = Down payment + present value
= 200, 000 +753,702.20
= 953,702.20
The cash price of the car is P953,702.20

49 | S H S M A T H E M A T I C S D E P A R T M E N T
 ARELLANO UNIVERSITY
Juan Sumulong Campus
2600 Legarda St., Sampaloc, Manila
SENIOR HIGH SCHOOL DEPARTMENT
School Year 2021 - 2022
-

4. Paolo borrowed P100, 000. He agrees to pay the principal plus interest by paying an
equal amount of money each year for 3 years. What should be his annual payment if
interest is 8 % compounded annually?
Given:
𝑃 = 100,000 𝑚 = 1 𝑖 ( ) = 0.08
𝑗 = 0.08 𝑡 = 3 𝑛 = 3
Find: Periodic payment R
Solution:

1 − (1 + 𝑗)
𝑆𝑖𝑛𝑐𝑒 𝑃=𝑅
𝑗
1 − (1 + 𝑗)
𝑅 = 𝑃/
𝑗

1 − (1 + 0.08)
𝑅 = 100,000/
0.08

𝑅 = 38,803.35
Thus, the man should pay P38, 803.35 every year for 3 years

IV. EXERCISES
Directions: Solve the present value P, and amount F of the following ordinary annuities.

1. Quarterly payments of P2000 for 5 years with interest rate of 8 % compounded

quarterly.
2. Semi-annual payments of P8000 for 12 years with interest rate of 12 % compounded
semi-annually
3. Daily payments of P50 for 30 days with interest rate of 20 % compounded daily.

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