SENIOR HIGH SCHOOL

General Mathematics
Quarter 2 – Module 3
(Week 4)
Fair Market Value, Cash Flow and
Deferred Annuity

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About the Module
This module was designed and written with you, students, in mind. It is here to help
you master the nature of functions. The scope of this module permits it to be used
in many different learning situations. The language used recognizes the diverse
vocabulary level of students. The lessons are arranged based on the Most Essential
Learning Competencies (MELCs) released by the Department of Education (DepEd)
for this school year 2020 – 2021.

This module is divided into two lessons, namely:

Lesson 9 – Fair Market Value and Cash Flow

Lesson 10 – Deferred Annuity

After going through this module, you are expected to:

o calculate the fair market value of a cash flow stream that includes an
annuity; and
o calculate the present value and period of deferral of a deferred annuity.

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 What I Know (Pre-test)

Directions: Choose the letter of the correct answer and write them on a separate
sheet of paper.

1. A term that refers to payments received (cash inflows) or payments or deposits

made (cash outflows).
A. Buy and Sell B. Cash Flow C. Remittance D. Trade

2. The _____ of a cash flow (payment stream) on a particular date refers to a single
amount that is equivalent to the value of the payment stream at that date.
A. Exchange Value C. Fair Market Value
B. Future Value D. Present Value

3. It refers to the time between the purchase of an annuity and the start of the
payments for the deferred annuity.
A. Focal Date C. Payment Stream
B. Payment Interval D. Period of Deferral

4. It is a type of annuity that does not begin until a given time interval has passed.
A. Annuity Certain C. Contingent Annuity
B. Annuity Due D. Deferred Annuity

5. It is a sequence of payments made at equal (fixed) intervals or periods of time.

A. Annuity B. Installment C. Insurance D. Interest

For numbers 6 – 9, refer to the problem below.

Mr. and Mrs. Reyes received two offers on a lot that they want to sell. Mr.
Ocampo has offered P50,000 and P1 million lump sum payment 5 years from
now. Ms. Cruz has offered P50,000 plus P40,000 every quarter for five years.
Compare the fair market values of the two offers if money can earn 5%
compounded annually.

6. What is the fair market value of Mr. Ocampo’s offer?

A. ₱833,526.17 C. ₱755,572.68
B. ₱733,526.17 D. ₱705,572.68

7. What is the fair market value of Ms. Cruz’s offer?

A. ₱833,526.17 C. ₱755,572.68
B. ₱733,526.17 D. ₱705,572.68

8. What is the difference between Mr. Ocampo’s offer and Ms. Cruz’s offer?

A. ₱77,953.49 C. ₱76,953.49
B. ₱77,853.49 D. ₱76,853.49

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9. Which offer has the higher market value?

A. Mr. Ocampo C. Mr. Reyes

B. Ms. Cruz D. Mrs. Reyes

For numbers 10 – 15, refer to the problem below.

Unfortunately, May’s phone got broken. She needs a new one immediately so
she decided to buy one using her credit card. She then realized that she can
only start paying after 6 months when her sister could help her in saving for the
house. Thus, she called the bank and requested to start paying after six months.
The bank granted the request with 6% interest converted monthly. If she has to
pay ₱3,000 at the end of each month for 12 months, how much is the present
value of her phone?

10. What is the value of the regular payment per month ( R )?

A. ₱6,000 B. ₱5,000 C. ₱4,000 D. ₱3,000

11. What is the period of deferral ( k )?

A. 18 months B. 12 months C. 6 months D. 3 months

12. What is the interest rate per period ( j )?

A. 0.005 B. 0.05 C. 0.06 D. 0.6

13. What is the present value assuming payments are also made during the period
of deferral ( P )?

A. ₱51, 518.30 B. ₱33,829.15 C. ₱17, 689.15 D. ₱10,000.00

14. What is the present value of the payments made in the period of deferral ( P’ )?
A. ₱51, 518.30 B. ₱33,829.15 C. ₱17, 689.15 D. ₱10,000.00

15. What is the difference between P and P’ ?

A. ₱51, 518.30 B. ₱33,829.15 C. ₱17, 689.15 D. ₱10,000.00

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 Lesson Fair Market Value and Cash
9 Flow

What I Need to Know

At the end of this lesson, you are expected to:
o define terms related to fair market value and cash flow;
o illustrate cash flows using time diagrams; and
o calculate the present value and period of deferral of a

”
deferred annuity.

Hi! It’s me again, teacher Mathilda! I will guide you in your

Math adventure in understanding Fair Market Value and
Cash Flow. Let’s have a review first before we start the
lesson. Review the terms and concepts shown below.

What’s In

☑General Annuity – a type of annuity where the payment interval is not the same
as the interest period. For example, you will pay a loan quarterly with an interest
compounded annually.
☑Simple Annuity – another annuity where the payment interval is the same as
the interest period. For example, depositing a money annually with an interest
compounded annually.
☑Future and Present Value Formula (Simple and General Annuity)
(1 + 𝑗)𝑡 − 1
𝐹=𝑅
𝑗
1 − (1 + 𝑗)−𝑡
𝑃=𝑅
𝑗
where R is the regular payment
j is the interest rate per period, and
t is the number of payments
Source: General Mathematics Teaching Guide, 2016

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 What’s New

What are fair market value and cash flow? What should I know?

☑Cash Flow – a term that refers to payments received (cash inflows) or payments
or deposits made (cash outflows). Cash inflows can be represented by positive
numbers and cash outflows can be represented by negative numbers.
☑Fair Market Value (Economic Value) – of a cash flow (payment stream) on a
particular date refers to a single amount that is equivalent to the value of the
payment stream at that date. This particular date is called the focal date. For this
lesson, we will choose the focal date at the start of the term or t = 0.
Source: General Mathematics Teaching Guide, 2016

Solving problems involving fair market values of a cash flow.

We will now solve problems involving fair market values of a cash flow. This is
composed of many solutions. Please follow all the steps in order to answer the
practice activity that will follow.

Let’s get started!

Example:

Mr. and Mrs. Reyes received two offers on a lot that they want to sell. Mr. Ocampo
has offered P50,000 and P1 million lump sum payment 5 years from now. Ms. Cruz
has offered P50,000 plus P40,000 every quarter for five years. Compare the fair
market values of the two offers if money can earn 5% compounded annually. Which
offer has a higher market value?

Solution.
Step 1: State the given
Given:
Mr. Ocampo’s offer Ms. Cruz’s offer
P50,000 down payment P50,000 down payment
P1,000,000 after 5 years P40,000 every quarter for 5 years
Step 2: Illustrate the cash flows of the two offers using time diagrams
Mr. Ocampo’s Offer
(P) (F)
50,000 1,000,000
_______________________________________________________
0 1 2 3 … 20

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 Ms. Cruz’s Offer
(P) (F)
50,000 40,000 40,000 40,000 … 40,000
_______________________________________________________
0 1 2 3 … 20

Step 3: Computation of Fair Market Value

(a) Mr. Ocampo
Since P50,000 is offered today, then its present value is still P50,000.
The present value of P1,000,000 offered five years from now is:
𝑃 = 𝐹(1 + 𝑗)−𝑡
𝑃 = 1,000,000(1 + 0.05)−5
⇨ F = 1,000,000 j = 0.05 t=5
−5
𝑃 = 1,000,000(1 + 0.05)
𝑃 = 1,000,000(1.05)−5
𝑃 = 1,000,000(0.7835 … )
𝑃 = ₱783,526.17 (round off to the nearest centavo)
𝐹𝑎𝑖𝑟 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 (𝐹𝑀𝑉 ) = 50,000 + 783,526.17
𝑃 = ₱833,526.17
(b) Ms. Cruz
Compute for the present value of a general annuity with quarterly
payments but with annual compounding of 5%
Use the Formula and look for 𝑖
(1 + 𝑖)𝑛 = 1 + 𝑖12
𝑤ℎ𝑒𝑟𝑒 𝑛 = 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑎𝑦𝑚𝑒𝑛𝑡 𝑖𝑛𝑡𝑒𝑟𝑣𝑎𝑙 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
⇨ (1 + 𝑖)4 = 1 + 0.05
𝑝𝑎𝑦𝑚𝑒𝑛𝑡 𝑖𝑛𝑡𝑒𝑟𝑣𝑎𝑙 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 𝑖𝑠 4 𝑠𝑖𝑛𝑐𝑒 𝑀𝑠. 𝐶𝑟𝑢𝑧 𝑤𝑖𝑙𝑙 𝑝𝑎𝑦 𝑞𝑢𝑎𝑟𝑡𝑒𝑟𝑙𝑦
𝑇ℎ𝑒𝑟𝑒 𝑎𝑟𝑒 4 𝑞𝑢𝑎𝑟𝑡𝑒𝑟𝑠 𝑖𝑛 𝑎 𝑦𝑒𝑎𝑟

⇨ (1 + 𝑖)4 = 1.05
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⇨ 1 + 𝑖 = √1.05
⇨ 1 + 𝑖 = 1.0122 …
⇨ 𝑖 = 1.0122 … − 1 ►transfer 1 from the left side to the right side
then proceed to subtraction
⇨ 𝑖 = 0.0122 …

We will replace i to the value of j in the following solution.

The present value of an annuity is given by

1 − (1 + 𝑗)−𝑡
𝑃=𝑅
𝑗

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 1 − (1 + 0.0122 … )−20
𝑃 = 40,000
0.0122 …
► The value of t = 20 because Ms. Cruz will pay 40,000
every quarter for 5 years. There are 4 quarters every
year, consequently, 20 quarters in 5 years.
1 − (1.0122 … )−20
𝑃 = 40,000
0.0122 …
1 − 0.7835 …
𝑃 = 40,000
0.0122 …
0.2164 …
𝑃 = 40,000
0.0122 …
0.2164 …
𝑃 = 40,000
0.0122 …
𝑃 = 40,000(17.63931701)
𝑃 = ₱705,572.68 (round off to the nearest centavo)

𝐹𝑎𝑖𝑟 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 (𝐹𝑀𝑉 ) = 50,000 + 705,572.68

𝑃 = ₱755,572.68
Step 4: Comparison of Fair Market Values
The difference between the market values of the two offers at the
start of the term is

₱833,526.17 – ₱755,572.68 = ₱77,953.49

Step 5: Give the conclusive statement
Therefore, Mr. Ocampo’s offer has a higher market value than Ms.
Cruz.

What’s More

NOW IT’S YOUR TURN!

Directions: Solve the problem below. Follow the steps discussed in this lesson.

Mr. and Mrs. Rodriguez received two offers on a house that they want to sell.
Mr. Ocampo has offered P100,000 and P2 million lump sum payment 5 years from
now. Ms. Cruz has offered P100,000 plus P100,000 every quarter for five years.
Compare the fair market values of the two offers if money can earn 6% compounded
annually. Which offer has a higher market value?

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 What I Need to Remember

● Cash Flow is a term that refers to payments received

(cash inflows) or payments or deposits made (cash
outflows).
● Fair Market Value (Economic Value) of a cash flow
(payment stream) on a particular date refers to a single
amount that is equivalent to the value of the payment
stream at that date.
● Steps in answering the word problems.

Lesson Deferred Annuity

10

What I Need to Know

At the end of this lesson, you are expected to:
● define terms related to deferred annuity; and
● calculate the present value and the period of deferral of a
deferred annuity.

“
Phew! That was a long but amazing learning. We made
it! Welcome to Lesson 10! Again, I’m teacher Mathilda.
I will continue to guide you in learning a new lesson
that tackles concepts on deferred annuity. Let’s get
started!

DEFINITION OF TERMS
1. Annuity – a sequence of payments made at equal (fixed) intervals or periods
of time.
2. Annuity immediate or Ordinary annuity – a type of annuity in which
payments are made at the end of each period.
3. Deferred annuity – an annuity that does not begin until a given time interval
has passed.
4. Period of deferral – time between the purchase of an annuity and the start of
the payments for the deferred annuity.

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 5. Present Value of an Ordinary Annuity – given by the following formula.
1 − (1 + 𝑗)−𝑡
𝑃=𝑅
𝑗
where R is the regular payment,
j is the interest rate per period, and
t is the number of payments
Source: General Mathematics Teaching Guide, 2016

What’s New

Finding the Present Value of a Deferred Annuity

Example. Unfortunately, May’s phone got broken. She needs a new one immediately
so she decided to buy one using her credit card. She then realized that she can only
start paying after 6 months when her sister could help her in saving for the house.
Thus, she called the bank and requested to start paying after six months. The bank
granted the request with 6% interest converted monthly. If she has to pay ₱3,000 at
the end of each month for 12 months, how much is the present value of her phone?

Let’s reflect! Is the annuity deferred, ordinary or certain?

Why is this a deferred annuity?

Deferred Annuity is an annuity that does not begin until a given time interval has
passed. May can only pay after 6 months, thus, this problem is an example of a
deferred annuity.

Why is this an ordinary annuity?

Ordinary annuity is an annuity in which the payments are made at the end of each
payment interval. May has to pay at the end of each month (payment interval) for 12
months, therefore, this is an ordinary annuity.

Why is this an annuity certain?

Annuity certain is an annuity in which the payments begin and end at definite time.
May will only take for twelve months to pay for the cellphone, therefore, there is a
definite time for the payments. Hence, this is a proof that this problem is an annuity
certain.

Solving the Present Value of a Deferred Annuity

In the above example, what is the present value if May will start paying at the end of
the 7th month to the end of 18th month?

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Solution.
Step 1: Illustrate the deferred annuity

Deferred Annuity
P=?
3000 3000 3000 … 3000
______________________________________________
0 1 2 3 4 5 6 7 8 9 … 18
12 months payment

6 months period of deferral

Step 2: State the given

Given: R = ₱3,000
Term t = 12 months
Interest rate per annum (year) i12 = 6% or 0.06
Period of deferral (k) = 6
Period of deferral plus term (t + k) = 12 + 6 = 18
Step 3: Find for the number of conversions per year m
Interest conversion period = monthly
Months per year = 12
m = 12
𝑖 12
Step 4: Find the Interest rate per period (j = )
𝑚
𝑖 12 0.06
j= = = 0.005
𝑚 12
Step 5: Assume payments are made during the period of deferral

Deferred Annuity (t + k)
P=?
3000 3000 3000 3000 3000 3000 3000 3000 3000 3000 … 3000
______________________________________________
0 1 2 3 4 5 6 7 8 9 … 18

Step 6: Solve for the present value assuming payments are also made
during the period of deferral
1−(1+𝑗)−(𝑡+𝑘)
𝑃=𝑅 𝑗
1−(1+0.005)−(12+6)
𝑃 = 3000 0.005
1−(1.005)−18
𝑃 = 3000 0.005
1−0.9141…
𝑃 = 3000 0.005

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 0.0858…
𝑃 = 3000 0.005
𝑃 = 3000 (17.1727 … )
𝑃 = 51, 518.30 (round off to the nearest centavo)
Step 7: Solve for the P’ of artificial payments or payments made in the
period of deferral

Deferred Annuity (k)

P=?
3000 3000 3000 3000 3000 3000
______________________________________________
0 1 2 3 4 5 6

1−(1+𝑗)−𝑘
𝑃′ = 𝑅 𝑗
1−(1+0.005)−6
𝑃′ = 3000 0.005
1−(1.005)−6
𝑃′ = 3000
0.005
1−0.9705…
𝑃′ = 3000 0.005
0.0294…
𝑃′ = 3000 0.005
𝑃′ = 3000 (5.8963 … )
𝑃′ = 17, 689.15 (round off to the nearest centavo)

Step 8: Subtract the present values of the two payments

𝑃 − 𝑃′ = 51,518.30 − 17,689.15
𝑃 − 𝑃′ = ₱33,829.15
Step 9: Give the conclusive statement
The present value of the phone that May would like to purchase after
12 months with 6 months period of deferral is ₱33,829.15.

What’s More
NOW IT’S YOUR TURN!
Directions: Solve the problem. Write your solutions on a separate sheet of paper.

Unfortunately, Christopher’s television got broken. He needs a new one immediately

so he decided to buy one using his credit card. He then realized that he can only
start paying after 6 months when his brother could help him in saving for the house.
Thus, he called the bank and requested to start paying after six months. The bank
granted the request with 9% interest converted monthly. If he has to pay ₱1,500 at
the end of each month for 12 months, how much is the present value of his
television?

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 What I Need to Remember

There are nine steps to solve problems involving present values of deferred
annuity.
1. Illustrate the deferred annuity
2. State the given
3. Find for the number of conversions per year m
𝑖 12
4. Find the Interest rate per period (j = )
𝑚
5. Assume payments are made during the period of deferral
6. Solve for the present value P assuming payments are also made during
the period of deferral
7. Solve for the P’ of artificial payments or payments made in the period
of deferral
8. Subtract the present values of the two payments: P – P’
9. Give the conclusive statement.

What I Can Do

Directions: Copy and locate the terms in the word search puzzle below.

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 Assessment (Post-test)

Directions: Choose the letter of the correct answer and write them on a separate
sheet of paper.

1. Which of the following is the term that refers to payments received (cash inflows)
or payments or deposits made (cash outflows)?
A. Buy and Sell B. Cash Flow C. Remittance D. Trade

2. It is a sequence of payments made at equal (fixed) intervals or periods of time.

A. Annuity B. Installment C. Insurance D. Interest

3. It is a type of annuity that does not begin until a given time interval has passed.
A. Annuity Certain C. Deferred Annuity
B. Annuity Due D. Ordinary Annuity

4. What do you call the term that pertains to the cash flow (payment stream) on a
particular date refers to a single amount that is equivalent to the value of the
payment stream at that date?
A. Exchange Value C. Future Value
B. Fair Market Value D. Present Value

5. This term refers to the time between the purchase of an annuity and the start of
the payments for the deferred annuity.
A. Focal Date C. Payment Stream
B. Payment Interval D. Period of Deferral

For numbers 6 – 9, refer to the problem below.

Mr. and Mrs. Reyes received two offers on a lot that they want to sell. Mr.
Ocampo has offered P40,000 and P1 million lump sum payment 5 years from
now. Ms. Cruz has offered P40,000 plus P45,000 every quarter for five years.
Compare the fair market values of the two offers if money can earn 5%
compounded annually.

6. What is the fair market value of Mr. Ocampo’s offer?

A. ₱823,526.17 C. ₱843,526.17
B. ₱833,526.17 D. ₱853,526.17

7. What is the fair market value of Ms. Cruz’s offer?

A. ₱833,769.27 C. ₱853,769.27
B. ₱843,769.27 D. ₱863,769.27
8. What is the difference between Mr. Ocampo’s offer and Ms. Cruz’s offer?

A. ₱8,245.23 C. ₱10,243.10
B. ₱9,552.89 D. ₱12,429.68

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9. Which offer has the higher market value?

A. Mr. Ocampo C. Mr. Reyes

B. Ms. Cruz D. Mrs. Reyes

For numbers 10 – 15, refer to the problem below.

Unfortunately, Chris’ television got broken. He needs a new one immediately so

he decided to buy one using his credit card. He then realized that he can only
start paying after 6 months. Thus, he called the bank and requested to start
paying after six months. The bank granted the request with 6% interest
converted monthly. If he has to pay ₱2,000 at the end of each month for 12
months, how much is the present value of his new television?

10. What is the value of the regular payment per month ( R )?

A. ₱2,000 B. ₱3,000 C. ₱4,000 D. ₱5,000

11. What is the period of deferral ( k )?

A. 3 months B. 6 months C. 12 months D. 18 months

12. What is the interest rate per period ( j )?

A. 0.6 B. 0.06 C. 0.05 D. 0.005

13. What is the present value assuming payments are also made during the period
of deferral ( P )?

A. ₱34,345.53 B. ₱34,345.54 C. ₱35,354.45 D. ₱35,355.45

14. What is the present value of the payments made in the period of deferral ( P’ )?
A. ₱11,792.76 B. ₱11,792.77 C. ₱11,972.66 D. ₱11,976.26

15. What is the difference between P and P’ ?

A. ₱22,552.77 B. ₱22,552.78 C. ₱23,379.19 D. ₱23,561.68

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References
Text Book
Orines, F. B. (2016). Next Century Mathematics 11 General Mathematics. Pheonix
Publishing House Inc. with Fernando B. Orines. pp. 25 – 40.

Websites
Commission of Higher Education - CHED (2017). General Mathematics.
TeachTogether Simple Annuity. Accessed November 11, 2020. Retrieved
from www.ched.gov.ph
Maxonlinemath, n.d. Accessed on November 11, 2020. Retrieved from
http://www.maxonlinemath.com/math12/jdinvx/genann.htm

PDF
Verzosa, Debbie Marie B. et al. (2016). General Mathematics Teaching Guide [PDF
File]. Quezon City, Philippines: Commission on Higher Education. pp 196-
224. Retrieved from https://www.lrmds.gov.ph

Avatars
All avatars used in this module are created originally using the Bitmoji mobile
application. Created on July 15, 2020.

Icons
All icons used in this module is taken from MS Office 365.

Congratulations!
You are now ready for the next module. Always remember the following:

1. Make sure every answer sheet has your

▪ Name
▪ Grade and Section
▪ Title of the Activity or Activity No.
2. Follow the date of submission of answer sheets as agreed with your
teacher.
3. Keep the modules with you AND return them at the end of the school year
or whenever face-to-face interaction is permitted.

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