GENERAL ANNUITY

GENERAL ANNUITY

•is an annuity where the length of the

payment interval is not the same as
the length of the interest
compounding period.
 GENERAL ORDINARY ANNUITY

•A general annuity in which the

periodic payment is made at the end
of the payment interval.
•Examples of General annuity:
•1. Monthly installment payment of a
car, lo or house with an interest rate
that is compounded annually.
• 2. Paying a debt semi-annually when
the interest is compounded monthly.
 EXAMPLE 1:

•Cris started to deposit P1,000

monthly in a fund that pays 6%
compounded quarterly. How much
will be in the fund after 15 years?
• GIVEN: R = 1,000, n = 12(15) = 180
payments, i(4) = 0.06m = 4
EXAMPLE 2- FUTURE VALUE OF GENERAL ANNUITY

•ABC bank pays interest at the rate

of 2% compounded quarterly. How
much will Ken have in the bank at
the end of 5 years if he deposits
P3,000 every month?
 EXAMPLE 3- FUTURE VALUE OF GENERAL ANNUITY

•Mrs. Remoto would like to buy a television

(TV) set payable for 6 months starting at
the end of the month. How much is the
cost of the TV set if her monthly payment
is P3,000 and interest is 9% compounded
semi-annually.
 EXAMPLE 2:

•Ken borrowed an amount of money from

Kat. He agrees to pay the principal plus
interest by paying P38, 973.76 each year for
3 years. How much money did he borrow if
the interest is 8% compounded quarterly?
GIVEN: R = 38,973.76, = 0.08, m = 4, n = 3
payments Find P, Present Value
 CASH FLOW
• is 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.
 EXAMPLE 2 OF PRESENT VALUE

• Laura wants to accumulate $150,000 in her

bank account by depositing 1000 at the
beginning of each month. If interest on the
account is 5% compounded quarterly, for
how long does Laura have to deposit the
money?
FAIR MARKET VALUE OR 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 focal
date.
 EXAMPLE 3:
• Mr. Ribaya received two offers on a lot that he
wants to sell. Mr. Ocampo has offered P50,000
and a P1million lump sum payment 5 years
from now. Mr. Cruz has offered P50,000 plus
P40,000 every quarter for five years. Compare
the fair market value of the two offers if money
can earn 5% compounded annually. Which offer
has a higher market value?
Find the market value of each offer.
We illustrate the cash flows of the two offer using time diagram
EXERCISE
 EXERCISE

•ABC bank pays interest at the rate of

2% compounded quarterly. How
much will Ken have in the bank at the
end of 5 years if he deposits P3,000
every month?