GENERAL MATHEMATICS

WEEK 3 – Q2
- is another common business practice of payment
(house rental, life insurance premiums, bond
dividends, installment payments, and labor wages)

- annuity takes different forms and the mode of

payments is basically the basis for the forms of
annuities

-individuals and business owners invest in annuities

for several reasons such as to pay promissory notes,
dividends, liabilities, taxes and retirement benefits
or accumulate funds to expand their business or
- An annuity is a series of equal
payments made at equal intervals of
time(each payment is added to the
amount already in the account and the
new balance becomes the basis for
calculating the compound interest)
Classifications of Annuities
A. By Correspondence with Interest Periods
1. Simple Annuity – is an annuity with the
same interest conversation dates and
payment dates
2. General Annuity – is an annuity where the
payment dates do not coincide with the
interest conversion periods
B. By Term
1. Annuity Certain
-is an annuity with fixed dates for both the
first and the last payments
2. Perpetuity
- is an annuity with a definite beginning
date but no ending date
3. Contingent Annuity
- is an annuity with indefinite dates for
either the first or the last payments
C. By Date of Payment
1. Ordinary Annuity
- is an annuity for which payment are made at
the end of the interest conversion periods
2. Annuity Due
- is an annuity for which payments are made at
the beginning of each interest conversion period
3. Deferred annuity
- is an annuity where payments are made at
the end of each payment interval, with the first
payment made on a later date
 SIMPLE ORDINARY ANNUITY
The simple ordinary annuity is a series of
equal and regular payments in which each
payment is made at the end of the payment
period. The amount of each payment is
called the periodic rent or periodic payment.
The periodic period is the length of time
between two successive payments. The
length of time between the beginning of the
first payment period is called the term of the
annuity.
  AMOUNT OF AN ORDINARY ANNUITY
-the amount or final value (cash value) of an
ordinary annuity
- the sum of all payments and the accumulated
interests
FORMULA:
S= R []

where: S- amount of ordinary annuity

R- amount of periodic payment
i- rate of interest per conversion period
n- number of payment periods
Examples:
 
1. A man will deposit Php 25 000 each year for the next 5 years in
an ordinary annuity account that pays 8% interest compounded
annually. Find the amount of the annuity at the end of 5 years.

Given: R- Php 25 000

n- 5 (5yearsx 1 period per year)
i – 8% or 0.08
Solution:
S= R []
S= Php 25 000 []
S = Php 146 665.02
2. Find the amount of an ordinary annuity whose payment of Php 16 000 is payable at the end of each quarter for 10 years and 6 months. Money is worth 5.8% compounded quarterly.

 
Given: R - Php 16 000
I - = 1.45% or 0.0145
n - 42 ( 10 years x 4 periods per year)
Solution:
S= R []
S= Php 16 000 []
S = Php 916 490.18
PRESENT
  VALUE OF AN ORDINARY ANNUITY
-the present value of an annuity is the sum of money today
which if invested at a specified rate will amount to all the
payments and the compound interests at the end of the term of
the annuity
- the lump sum deposited today in order to receive a specified
number of regular periodic payments

FORMULA: A= R []
where: A= present value of an ordinary annuity
R= amount of periodic payment
i= rate of interest per conversion period
n= number of payment periods
Examples:
 
1. Find the present value of an ordinary annuity
whose periodic payment of Php 15 000 is payable
at the end of each 6 months for 10 years at 8%
compounded semi-annually.
Given: R = Php 15 000
n = 20 (10 years x 2 periods per year)
i = 4% or 0.04
Solution:
A= R []
A= Php 15 000 []
A= Php 203 854. 90
2.
  Mr. Romero wants to deposit a sum of money today that
will give an ordinary annuity paying Php 12 000 quarterly
for the next 6 years. If the interest is 8.8% compounded
quarterly and withdrawals will be done at the end of each
quarter, find the present value of the ordinary annuity.

Given: R = Php 12 000

n = 24 (6 years x 4 periods per year)
i = = 2.2% or 0.022
Solution:
A= R []
A= Php 12 000 []
A= Php 221 907. 78
  FINDING THE PERIODIC PAYMENT
R=

OR

R=
Examples:
 
1. Mary applied for a house and lot loan worth Php 750
000 through Pag-ibig Fund. She paid a down payment of
Php 50 000 with an agreement to pay the balance in 10
years at 8% compounded quarterly. How much is the
quarterly payment?

Given: A = Php 700 000 ( 750 000 – 50 000)

i = = 0.02
n = 40 ( 10 years x 4 period per year)
Solution:
R=
R=
R= Php 25 589.02
 FINDING THE TERM OF AN ORDINARY ANNUITY

We use the formulas:

n=

n=-
Example:
 
JM borrowed an amount of Php 90 000 at an interest rate of 12%
compounded semi-annually. JM agreed to pay Php 9 000 at the
end of 6 months until the maturity date. Give the number of
payments he should make to settle the account.
Given: A= Php 90 000
R= Php 9 000
r= 12% or 0.12
i= = 0.06
Solution:
n=-
n=-
n = 15.73 or 16
Activity 2.6
Deepen Your Understanding 1-5 page 172