NAME: ____________________________________ YR & SEC: _____________________

Competency:
The l​ earner illustrates simple and general annuities (M11GM-IIc-1​); ​distinguishes between simple and
general annuities (M11GM-IIc-2); and finds the future value and present value of both simple annuities and
general annuities (M11GM-IIc-d-1).

To the Learners:
Before starting the module, I want you to set aside other tasks that will disturb you while
enjoying the lessons. Read the simple instructions below to successfully enjoy the objectives of this
kit. ​Have fun!
1. Follow carefully all the contents and instructions indicated in every page of this module.
2. Write on your notebook the concepts about the lessons. ​Writing enhances learning ​that is
important to develop and keep in mind.
3. Perform all the provided activities in the module.
4. Let your facilitator/guardian assess your answers using the answer key card.
5. Analyze conceptually the posttest and apply what you learned.
6. Enjoy studying!

Expectations
This module was designed to help and give you an idea of the concepts about simple and general
annuities, and future value and present value of both simple and general annuities.
After going through this module, you are expected to:
1. illustrate simple and general annuities;
2. distinguish between simple and general annuities; and
3. find the future value and present value of both simple annuities and general annuities.

Pre - Test
Read each item carefully. Choose the letter of the best answer. Write the chosen letter on a separate sheet
of paper.

1. It is the time from the beginning of the first payment period to the end of the last payment period.
A. Future Value C. Simple Annuity
B. Term of an Annuity D. Payment Interval

2. It is an annuity in which the payment interval is different from the compounding period.
A. Simple Annuity C. Payment Interval
B. Future Value D. General Annuity
 3. Which of the following is the formula for the present value of simple ordinary annuity?
A. S = R
(1+i)n −1
i C. An = R [ 1−(1+i)−n
i ]
B. S = R
(1−i)n +1
i D. An = R [ 1+(1−i)−n
i ]
4. A payment of ₱500 will be paid at the end of every year at 6% interest compounded annually for five
years. Find its present value.
A. ₱3 106.18 C. ₱2 106.18
B. ₱5 106.18 D. ₱4 106.18

5. Johnny has a monthly mortgage of ₱1200 for five years in a bank which earns interest at 6%
compounded semiannually. How much mortgage will he pay at the end of five years?
A. ₱27 718.14 C. ₱27 718.66
B. ₱13 756.66 D. ₱28 718.14

Looking Back to your Lesson

​In your previous lesson, you have learned how to compute for the accumulated amount or future
value and the amount of interest if a fixed sum of money was deposited in an account that paid interest
compounded periodically or continuously. But not many people are in a position to deposit a large sum of
money at one time in an account. Most people save (or invest) money by depositing relatively small amounts at
different times. If a depositor makes equal deposits at regular time intervals, he or she is contributing to an
annuity.

Introduction of the Topic

Lesson 1: Illustrating/Distinguishing Simple and General Annuities
An ​annuity is a sequence of payments made at equal (fixed) intervals or period of time. The interval
between consecutive payments is called the ​payment interval​. The interval may be monthly, bimonthly,
quarterly, semiannually, and annually. The term of an annuity is the time from the beginning of the first
payment interval to the day of the last payment. A large number of personal and business transactions
involved a series of regular equal payments and some of which are payments of insurance, premiums, leases,
mortgages, pensions, personal loans, rent, salary, and term loans. These are examples of annuity. Annuities
may be classified as simple annuity or general annuity.

Simple Annuity

Simple annuity is an annuity in which the payment interval is equal to the compounding period.
Example 1: ​A deposit of ₱7 000 was made at the end of every 3 months to an account that earns 6% interest
compounded quarterly. Since the payment interval at the end of every 3 months (quarterly) is equal to the
compounding, quarterly, the situation represents a simple annuity.
Example 2: ​The annuity of ₱1000 made at the end of each quarter for a year at 8% converted quarterly is the
sum of the compound amounts of four ₱1000 payments accumulated at the end of one year. This is an
example of simple annuity since the payment interval is quarterly and the compounding period is also
quarterly.
Example 3: ​₱10 000 is invested at the end of every six month for 2 years and that 15% interest is paid
compounded semiannually. Here, the term is 2 years with the periodic payment of ₱10 000 every 6 months,
that is, the payment period is equal to the interest period semiannually.

General Annuity

General annuity is an annuity in which the payment interval is different from the compounding period.
Example 1: ​A residential mortgage loan is an example of general annuity since payments are made monthly,
but the interest is usually compounded annually.
Example 2: ₱2000 invested annually at 8% compounded semiannually is an example of general annuity since
the payment interval (annually) is different from the compounding period (semiannually).
Example 3: ​Every 3 ​months, for 8 years, a father deposits ₱15 000 in a trust fund for his son’s education. The
money earns at 12% compounded monthly. The payment period is not equal to the interest period.

Lesson 2: Finding the Future Value and Present Value of both Simple and
General Annuities

Simple Annuity

Simple Annuity is an annuity where the payment interval coincides with the interest conversion period.
For example, ₱10 000 is invested at the end of every six month for 2 years and that 15% interest is paid
compounded semiannually. Here, the term is 2 years with the periodic payment of ₱10 000 every 6 months,
that is, the payment period is equal to the interest period semiannually.
Annuities are classified by payment dates. An annuity in which the payments are made at the end of
each payment period is called an ​ordinary annuity (​ or annuity immediate), whereas in which the payments are
made at the beginning of each period is called an ​annuity due.​ Furthermore, an annuity in which the payment
period does not coincide with the interest conversion period is called a ​complex annuity.
In this lesson, we consider ordinary annuities that are certain and simple, with periodic payments that
are equal in size. In other words, we study annuities that are subject to the following conditions:
1. The terms are given by fixed time intervals.
2. The periodic payments are equal in size.
3. The payments are made at the ​end​ of the payment periods.
4. The payment periods coincide with the interest conversion periods.
The sum of all payments plus all interest earned is called the ​future amount ​of the ​annuity ​or maturity
value​ or its ​future value.​

A. Future Value of an Ordinary Annuity

The future value of an ordinary annuity is given by
(1+i)n −1
S=R i

where
S​ = Future Value or Amount
R​ = Periodic payment
i​ = interest rate per conversion period ( mj )
j​ = interest rate per period
m​ = number of conversion period in a year
n​ = total number of conversion periods (t x m)
t​ = number of years
Examples:
1. Moira is paying a monthly rental of ₱3 500 per month with a two-year contract at 6% converted monthly.
How much will be her accumulated payments for two years if payment is made at the end of each month?
Given:
R​ = ₱3 500 ​m​ = 12 ​t​ = 2
j​ = 6% = 0.06 ​i​ = 0.06/12 = 0.005 ​n​ = 2 x 12 = 24

Solution:
(1+i)n −1
S=R i
(1+0.005)24 −1
S=3 500 0.005
24
= 3 500 (1.005)
0.005
−1

= 3 500 1.127159776−1
0.005

= 3 500 0.127159776
0.005

= ₱89 011.84
Therefore, if payments are made at the end of each month, her accumulated payments for two years is
₱89 011.84​.

2. Mr. Gomez deposits ₱85 000 at the end of each month in a bank which pays 9% compounded monthly. If
no withdrawals are made, how much could he expect to have after 4 years?
 Given:
R​ = ₱85 000 ​m​ = 12 ​t​ = 4
​j​ = 0.06 ​i​ = 0.09/12 = 0.0075 ​n​ = (4)(12) = 48
Solution:
n
(1+i) −1
S=R i
(1+0.0075)48 −1
= 85 000 0.0075

(1.0075)48 −1
= 85 000 0.0075

= 85 000 1.431405333−1
0.0075

= 85 000 0.431405333
0.0075

= 4 889 260.44
Therefore, the expected amount of Mr. Gomez after 4 years is ​₱4 889 260.44​.

3. Find the accumulated value immediately after the last payment of an annuity which pays ₱35 000 every 2
months for 10 years if the rate of interest is 6% convertible 6 times a year.
Given: R​ = ₱35 000 ​m​ = 6 ​t​ = 10
j​ = 0.06 ​i​ = 0.06/6 = 0.01 ​n​ = (10)(6) = 60
Solution:
(1+i)n −1
S=R i
60
(1+0.01) −1
= 35 000 0.01
(1.01)60 −1
= 35 000 0.01

= 35 000 1.816696699−1
0.01

= 35 000 0.816696699
0.01

​ = 2 858 438.45

Thus, the accumulated value is ​₱2 858 438.45​.

B. Present Value of an Ordinary Annuity

Suppose we wish to invest a lump sum of money (denoted by ​A​n​) in an annuity that earns interest at
​ er period in order to receive (withdraw) payments of size ₱​R from this account at the end of each of n
rate ​i p
periods (after which time the account balance will be ₱0). Recall that our receiving payments at the end of each
period mean that this is an ordinary annuity.
To find a formula for ​A​n,​ we have to compute the present value of each future payment and then add
these present values.
An​ ​ = ​R(​ 1+​i)​ -1​
​ + ​R​(1+​i​)-2​ ​ +…+ ​R​(1+​i​)-(​​ n​-1)​ + ​R​(1+​i​)-​​ n​
​ + ​R(​ 1+​i)​ -3​ (1)
Multiplying both sides of equation (1) by (1+i) gives
(1+​i​) ​An​ ​ = ​ 1+​i)​ -1​
​ ​R​ + ​R( ​ + …+ ​R(​ 1+​i)​ -(​​ n​-2)​ + ​R(​ 1+​i)​ -(​​ n​-1)​ (2)
​ + ​R​(1+​i​)-2​
If we subtract equation (1) from equation (2), we will obtain ​iAn​ ​ = ​R​ - ​R​(1+​i​)-​​ n.​ Then solving for ​A​n,​ g​ives
An = R [ 1−(1+i)−n
i ]
where
A​ = Present Value or Amount R​ = Periodic payment
i​ = interest rate per conversion period (j/m) j​ = interest rate per period
m​ = number of conversion period in a year
​n​ = total number of conversion periods (t x m) t​ = number of years

Examples​:
1. What is the present value of an annuity of ₱200 000 payable at the end of each 6-month period for 2 years
if money is worth 8%, compounded semiannually?
Given: ​R​ = ₱200 000 ​i​ = 0.08/2 = 0.04 ​m​ = 2 ​t​ = 2 ​n​ = (2)(2) = 4
Solution:
An = R [ 1−(1+i)−n
i ]
 = 200 000 [ 1−(1+0.04)−4
0.04 ]
= 200 000 (3.629895225)
An = ₱725 979.05
The total amount after 2 years is ₱725 979.05 .

2. Find the lump sum that one must invest in an annuity in order to receive ₱2 000 at the end of each month
for the next 16 years, if the annuity pays 9%, compounded monthly.
Given: ​R​ = ₱2 000 ​i​ = 0.09/12 = 0.0075 ​m​ = 12 ​t​ = 16 ​n​ = (16)(12) =192
Solution:
An = R [ 1−(1+i)−n
i ]
= 2 000 [ 1−(1+0.0075)−192
0.0075 ]
= 2 000 (101.5727689)

An = ₱203 145.54

Thus, the required lump sum is ​₱203 145.54​.

3. A payment of ₱500 will be paid at the end of every year at 6% interest compounded annually for five years.
Find its present value.
Given: ​R​ = ₱500 ​i​ = 0.06/1 = 0.06 ​m​ = 1 ​t​ = 5 ​n​ = (5)(1) = 5

Solution:
An = R [ 1−(1+i)−n
i ]
= 500 [ 1−(1+0.06)−5
0.06 ]
= 500 (4.212363785)

An = ₱2 106.18

The total amount at the end of 5 years is ​₱2 106.18 .

General Annuity
General annuity is an annuity in which the payment interval differs from the compounding interval.
Ordinary general annuity is a general annuity in which payments are made at the end of the payment
period with different payment interval and compounding interval.
General annuity due is a general annuity in which payments are made at the beginning of the payment
period with different interval and compounding interval.
Present value is the amount of money needed to invest today to receive a series of payments for a
given number of years in the future.
Future value is the future amount of a series of payments plus interest.
Payment intervals can be made to coincide with the interest by finding the number of periods in each
payment interval.
The following are the variables of general annuities:

A = present value
S = future value
R = periodic payments
t = term
m = number of compounding period for one year
n = total number of compounding periods for the whole term (t x m)
j = interest rate
i = rate per compounding period (j/m)
c = number of months in a compounding period
p = number of months in a payment interval
k = number of compounding periods in a given payment interval (p/c)
The following are the formulas to be used in general annuities:
 ● Present Value A=R [ 1−(1+i)−n
k
(1+i) −1 ]
● Future Value S=R [ (1+i)n −1
k
(1+i) −1 ]
A. Future Value of an Ordinary General Annuity
​ 25, ​i​ =3%, and ​k​ =3, find the amount of the ordinary general annuity.
1. If the periodic payment is ₱4 000, ​n=
Solution:
S=R [ (1+i)n −1
k
(1+i) −1 ]
= 4 000 [ (1+0.03)25 −1
(1+0.03) −1
3 ]
= 4 000 [ ]
(1.03)25 −1
3
(1.03) −1

= 4 000 [ 2.09377793−1
1.092727−1 ]

= 4 000 [ 1.09377793
0.092727 ]

= 4 000 (11.79567904)
S = ​₱​47 182.72
​Therefore, the amount of the annuity is ​₱47 182.72​.

2. Find the amount if an annuity of ₱50 payable monthly at the end of each month for 18 years is worth 5%
compounded quarterly.
Given​: ​R = ​ ₱50 ​ 18 years
​t = ​m​ = 4 ​n​ = (​t)​ (​m)​ =(18)(4) = 72
j 0.05 p
j ​= 5% = 0.05 ​i​ = m = 4 = 0.0125 ​p​ = 1 ​c​ = 3 k = c = 31
Solution:
S=R [ (1+i)n −1
k
(1+i) −1 ]
= 50 [ (1+0.0125)72 −1
(1+0.0125) 3−1
1 ]
= 50 [ (1.0125)72 −1
(1.0125) 3−1
1 ]
= 50 [ 2.445920268−1
1.004149425−1 ]

= 50 [ 0.004149425123
1.445920268
]
= 50 (348.4627931)

S = ​₱17 423.14
​Therefore, the amount after 18 years is ​₱17 423.14​.

3. Find the future value of an annuity of ​₱2 900 payable at the end of every six months for 7 years, if money is
worth 9% compounded monthly.
Given​: ​R ​= ₱2 900 ​ 7 years
​t = ​m​ = 12 ​n​ =(​t)​ (​m​) =(7)(12) = 84
j 0.09 p
j ​= 9% =0.09 ​i​ = m = 12 = 0.0075 ​p​ = 6 ​c​ = 1 k= c=6
Solution:
S=R [ (1+i)n −1
k
(1+i) −1 ]
= 2 900[ (1+0.0075)84 −1
(1+0.0075) −1
6 ]
= 2 900 [ ]
(1.0075)84 −1
6
(1.0075) −1

= 2 900 [ 1.873201963−1
1.045852235−1 ]

= 2 900 [ 0.8732019633
0.0458522351 ]

= 2 900 (19.04382548)
​ =​ ​₱55 227.09
S
​Therefore, the amount after 7 years is ​₱55 227.09.

B. Present Value of an Ordinary General Annuity

1. Find the present value of an ordinary general annuity of ₱3 500 each semiannually for three years if money
is worth 6% converted quarterly.
 Given: ​R​ = ₱3 500 ​t​ = 3 years ​ ​=4
m ​n​ =​(t)(m)​ =(3)(4) = 12
p
j = 6% = 0.06 ​i​ = mj = 0.06
4 = 0.015 ​p​ = 6 ​c​ = 3 k= c=2
Solution​:
A=R [ 1−(1+i)−n
k
(1+i) −1 ]
= 3 500 [ 1−(1+0.015)−12
(1+0.015) −1
2 ]
= 3 500 [ 1−(1.015)−12
2
(1.015) −1 ]
= 3 500 [ 1−0.8363874219
1.030225−1 ]

= 3 500 [ 0.1636125781
0.030225 ]

= 3 500 (5.413153949)
A = ₱18 946.04
Therefore, the present value is ​₱18 946.04​.

2. A deposit of ₱7 500 is made at the end of every month in an investment paying interest at 10% converted
quarterly. How much investment will there be at the end of 5 years?
Given: ​R = ​ ₱7 500 ​t​ = 5 years ​m​ = 4 ​n​ =​(t)(m)​ =(4)(5) = 20
j 0.1 p
j​ = 10% = 0.1 ​i​ = m = 4 = 0.025 ​p​ = 1 ​c​ = 3 k = c = 31

Solution:
A=R [ 1−(1+i)−n
k
(1+i) −1 ]
= 7 500 [ 1−(1+0.025)−20
(1+0.025) 3−1
1 ]
= 7 500 [ 1−(1.025)−20
1
(1.025) 3−1
]
= 7 500 [ 1−0.6102709429
1.008264838−1 ]

= 7 500 [ 0.3897290571
0.008264838 ]

= 7 500 (47.15507516)
​A = ​₱​353 663.06
Therefore, the amount after 5 years is ​₱353 663.06​.
3. Mr. and Mrs. De Jesus bought a car to be paid ₱30 000 monthly. If the car loan has an 8% interest
compounded quarterly for five years, how much will be the cash price of the car if payments are made at
the end of each month?
Given: ​R = ​ ₱30 000 ​t​ = 5 years ​m​ = 4 ​n​ =(t)(m) =(4)(5) = 20
j 0.08 p
j​ = 8% = 0.08 ​i​ = m = 4 = 0.02 ​p​ = 1 ​c​ = 3 k = c = 31
Solution:
A=R [ 1−(1+i)−n
k
(1+i) −1 ]
= 30 000 [ 1−(1+0.02)−20
(1+0.02) 3−1
1 ]
= 30 500 [ 1−(1.02)−20
1
(1.02) 3−1
]
= 30 000 [ 1−0.6729713331
1.00662271−1 ]

= 30 000 [ 0.3270286669
0.00662271 ]

​ = 30 000 (49.37988632)
​A = ​₱​1 481 396.59
Therefore, the amount after 5 years is ​₱​1 481 396.59​.
 Activities

​Activity 1:
​Fill in the blanks.
1. A sequence of payments made at equal time periods is a/an _______.
2. A simple annuity in which the payments are made at the end of each period is a/an ________.
3. An annuity where the payment interval is not the same as the interest period is a/an _________.
4. An annuity where the payment interval is the same as the interest period is a/an _____________.
5. An annuity in which payments begin and end at definite times is a/an _________.

Activity 2:​ Solve the following problems.

1. ₱7 500 payable at the end of each month for 10 years if money is invested at 5% compounded monthly.
Find its present value.
2. A payment of ₱100 will be paid at the end of each three months at 8% interest compounded quarterly for 10
years. Find its accumulated value.
3. If the periodic payment is ₱4000, n=25, i =3%, and k =3, find the amount of the ordinary general annuity.
4. ₱25 000 is invested at the end of every 3 months for 2 years and that 9% interest is paid compounded
quarterly. Find its present value.
5. Mary has a monthly mortgage of ₱1 200 for five years in a bank which earns interest at 6% compounded
semiannually. How much mortgage will he pay at the end of five years?

Remember
1. An ​annuity​ is a sequence of equal payments made at equal intervals of time.
2. Simple annuity​ is an annuity in which the payment interval is equal to the compounding period.
3. General annuity​ is an annuity in which the payment interval is different from the compounding period.
4. Present value​ is the amount of money required in the beginning.
5. Future value​ is the sum of the accumulated values of the periodic payments at the end of the term.
6. Problems that involve ​expenses and ​cash ​are present ​value problems​. Problems that involve ​income or
revenue​ are ​future value​ problems.

Check your Understanding

​Read the following annuity problem. Fill in the blanks in the statements that follow.
The present value of an annuity of ₱5 000 every end of 3 months for 10 years when the interest rate is
4% compounded annually is ₱164 631.30.
1. The value of periodic payment is ________________.
2. The number of compounding period for one year______________.
3. The number of compounding periods in a given payment interval is __________.
4. The interest rate per period is __________.
5. The amount of annuity after 10 years is ______________.

Post – Test
Read each item carefully. Choose the letter of the best answer. Write the chosen letter on a separate sheet
of paper.

1. It is the time from the beginning of the first payment period to the end of the last payment period.
A. Future Value C. Simple Annuity
B. Term of an Annuity D. Payment Interval
2. It is an annuity in which the payment interval is different from the compounding period.
 A. Simple Annuity C. Payment Interval
B. Future Value D. General Annuity
3. Which of the following is the formula for the present value of simple ordinary annuity?
A. S = R
(1+i)n −1
i C. An = R [ 1−(1+i)−n
i ]
B. S = R
(1−i)n +1
i D. An = R [ 1+(1−i)−n
i ]
4. A payment of ₱500 will be paid at the end of every year at 6% interest compounded annually for five
years. Find its present value.

A. ₱3 106.18 C. ₱2 106.18

B. ₱5 106.18 D. ₱4 106.18

5. Johnny has a monthly mortgage of ₱1200 for five years in a bank which earns interest at 6%
compounded semiannually. How much mortgage will he pay at the end of five years?

A. ₱27 718.14 C. ₱27 718.66

B. ₱13 756.66 D. ₱28 718.14

Additional Activities
To better understand the lesson, watch the video lesson on
https://www.youtube.com/watch?v=QE9srCCmEFY ​entitled “find the value of simple and
general annuity.”

Reflection
​

Direction: After the discussion ,lessons ,and studies the learner should
answer the following question to be able to know whether the learner attain
some level of knowledge learned in this session.
1. I’ve learned in this lessons were________________________________________________
____________________________________________________________________________
2. I can use what I have learned in real-life and everyday situations such as
______________________________________________________________________
____________________________________________________________________________

3. While answering the module, I have learned that

___________________________________
____________________________________________________________________________
4. Sharing with my friends and family the knowledge on
___________________________________________________________________________
___________________________________________________________________________

5. Well, the lesson is __________________________________________________________

____________________________________________________________________________