Lesson 2

General Annuity
 Objectives

At the end of this lesson, the learner should be able to

• accurately differentiate a general annuity from a

simple annuity;

• correctly determine if a real-life situation illustrates

the future value or the present value of a general
annuity;
 Objectives

• correctly determine if a real-life situation illustrates

an ordinary general annuity or a general annuity
due;

• correctly solve for the future value or the present

value of a general annuity.
 Essential Questions

• What is a general annuity?

• How will you know if the situation illustrates a future value

or a present value of a general annuity?

• How will you know if the situation illustrates an ordinary

general annuity or a general annuity due?
 Essential Questions

• How will you solve for the future value or the present
value of a general annuity?
 Warm Up!

Before we start with today’s lesson, let’s have a short drill on

solving problems involving simple interest by working as a
class on the following online exercise.

(Click the link to access the exercise.)

Tranter, John. “Interest.” Transum. Retrieved 30 April 2019

from https://bit.ly/2GRvBR5
 Guide Questions

• How do you solve problems involving interest?

• How does the compounding period affect the amount of

interest earned by a principal?
 Learn about It!

General Annuity
1 it is an annuity certain whose compounding period is not the same as the
payment interval.

Example:

Sheldon buys a brand-new TV with installment payments at

the end of each month with interest compounded annually.
Learn about It!

2 Solving for the Future Value and Present Value of a

General Annuity
1. Identify the given information from the problem.

We need to identify the following values.

𝑅 = regular or periodic payment,

𝑚𝑝 = number of regular or periodic payments per year,
𝑚𝑐 = number of compounding periods per year
t = time in years
𝑛 = total number of payments, given by 𝑛 = (𝑚𝑝 )(𝑡), where 𝑡 is the length of the
term in years.
Learn about It!

2 Solving for the Future Value and Present Value of a

General Annuity
2. Solve for 𝑗.

We introduce another value 𝑗 which is equal to following expression:

𝑚𝑐
ൗ𝑚𝑝
𝑟
1+ −1
𝑚𝑐

This process transforms the compounding period to the payment period.

Learn about It!

2 Solving for the Future Value and Present Value of a

General Annuity
2. Solve for 𝑗.
𝒎𝒄
ൗ𝒎𝒑
𝒓
𝒋= 𝟏+ −𝟏
𝒎𝒄

𝑗 = equivalent interest rate per payment interval

Learn about It!

2 Steps in Solving for the Future Value and Present

Value of a General Annuity
3. Compute for the Future Value or Present Value.

The following formulas are used in finding the future value and present value of a
General Ordinary Annuity (GOA).
Future Value of a General Present Value of a
Ordinary Annuity General Ordinary Annuity

(1 + j)𝑛 −1 1 − (1 + j)−𝑛
𝐹𝑉GOA =𝑅 𝑃𝑉GOA =𝑅
𝑗 𝑗
 Learn about It!

Example:
Joanne deposits ₱1 000 every end of the month in a savings
account at 3% interest compounded quarterly. How much
will her money be after five years?
 Learn about It!

In this case, we have the following given information.

• The regular payment is ₱1 000.

• The number of regular payments within a year is 12 since
Joanne deposits ₱1 000 every end of the month.
• The number of compounding periods is 4, and the interest
rate is 3%.
• The total number of payments is 𝑛 = (𝑚𝑝 )(𝑡) = (12)(5) = 60.
 Learn about It!

In symbols, we have the following:

𝑅 = ₱1 000
𝑟 = 3% = .03
𝑚𝑝 = 12
𝑚𝑐 = 4

𝒏 = (𝒎𝒑 )(𝒕), = (𝟏𝟐)(𝟓) = 𝟔𝟎

Next is to find the value of 𝑗

 Learn about It!

2. Solve for 𝑗.
𝒎𝒄
ൗ𝒎𝒑
𝒓
𝒋= 𝟏+ −𝟏
𝒎𝒄
𝟒ൗ
. 𝟎𝟑 𝟏𝟐
𝒋= 𝟏+ −𝟏
𝟒

𝒋 = 𝟎. 𝟎𝟎𝟐𝟒𝟗𝟑𝟕𝟕𝟔
 Learn about It!

• The future value of the general ordinary annuity is

computed as follows.
1+𝑗 𝑛−1
𝐹𝑉𝐺𝑂𝐴 = 𝑅
𝑗
1 + 0.002493776 60 − 1
𝐹𝑉𝐺𝑂𝐴 = 1 000
0.002493776
𝐹𝑉𝐺𝑂𝐴 = 64 634.57

Thus, her money will grow to ₱64 634.57 after 5 years.

 Try It!

Example 1: Marco deposits ₱1 000 at the end of every two

months in an account paying 3% compounded quarterly.
What will be the amount in his account after 5 years?
 Try It!

Example 1: Marco deposits ₱1 000 at the end of every two

months in an account paying 3% compounded quarterly.
What will be the amount in his account after 5 years?
Solution:
1. Identify the given information from the problem.

The regular payment is 𝑅 = 1 000.

The interest rate is 3% or 𝑟 = 0.03. The number of

compounding periods within a year is 𝑚𝑐 = 4 since
compounding is done quarterly.
 Try It!

Example 1: Marco deposits ₱1 000 at the end of every two

months in an account paying 3% compounded quarterly.
What will be the amount in his account after 5 years?
Solution:

The length of the term is 5 years or 𝑡 = 5. The payment is

made at the end of every two months or 𝑚𝑝 = 6.
Thus, the total number of payments is
𝑛 = (𝑚𝑝 )(𝑡) = (6)(5) = 30.
 Try It!

Example 1: Marco deposits ₱1 000 at the end of every two

months in an account paying 3% compounded quarterly.
What will be the amount in his account after 5 years?
Solution:
2. Solve for 𝑗.
𝒎𝒄
ൗ𝒎𝒑
𝒓
𝒋= 𝟏+ −𝟏
𝒎𝒄
𝟒ൗ
. 𝟎𝟑 𝟔
𝒋= 𝟏+ −𝟏
𝟒
 Try It!

Example 1: Marco deposits ₱1 000 at the end of every two

months in an account paying 3% compounded quarterly.
What will be the amount in his account after 5 years?
Solution:
2. Solve for 𝑗.
𝒋 = 0.0049937707
 Try It!

Example 1: Marco deposits ₱1 000 at the end of every two

months in an account paying 3% compounded quarterly.
What will be the amount in his account after 5 years?
Solution:
3. Determine the kind of annuity illustrates in the problem.

The situation illustrates the future value of the annuity since

we would like to know the value after 5 years. Moreover, it is
an general ordinary annuity since the payment is made at the
end of every two months.
 Try It!

Example 1: Marco deposits ₱1 000 at the end of every two

months in an account paying 3% compounded quarterly.
What will be the amount in his account after 5 years?
Solution:
4. Solve for the future value of the ordinary annuity.

(1 + 𝑗)𝑛 −1
𝐹𝑉GOA =𝑅
𝑗
(1 + 0.0049937707)30 −1
𝐹𝑉GOA = 1 000
0.0049937707
 Try It!

Example 1: Marco deposits ₱1 000 at the end of every two

months in an account paying 3% compounded quarterly.
What will be the amount in his account after 5 years?
Solution:

(1.0049937707)30 −1
𝐹𝑉GOA = 1 000
0.0049937707
𝐹𝑉GOA = 32 277.04
 Try It!

Example 1: Marco deposits ₱1 000 at the end of every two

months in an account paying 3% compounded quarterly.
What will be the amount in his account after 5 years?
Solution:
Thus, Marco will have ₱𝟑𝟐 𝟐𝟕𝟕. 𝟎𝟒 on his account at the end
of 5 years.
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges 3% interest compounded monthly. He
agreed to pay ₱3 000 at the end of every three months for
two years. What is the cash price of the cellphone?
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges 3% interest compounded monthly. He
agreed to pay ₱3 000 at the end of every three months for
two years. What is the cash price of the cellphone?
Solution:
1. Identify the given information from the problem.

The regular payment is 𝑅 = 3 000.

The interest rate is 3% or 𝑟 = 0.03. The number of
compounding periods within a year is 𝑚𝑐 = 12 since
compounding is done monthly.
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges 3% interest compounded monthly. He
agreed to pay ₱3 000 at the end of every three months for
two years. What is the cash price of the cellphone?
Solution:

The length of the term is 2 years or 𝑡 = 2. The payment is

made quarterly or 𝑚𝑝 = 4. Thus, the total number of
payments is 𝑛 = (𝑚𝑝 ) 𝑡 = (4)(2) = 8.
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges 3% interest compounded monthly. He
agreed to pay ₱3 000 at the end of every three months for
two years. What is the cash price of the cellphone?
Solution:
2. Solve for 𝑗.
𝒎𝒄
ൗ𝒎𝒑
𝒓
𝒋= 𝟏+ −𝟏
𝒎𝒄
𝟏𝟐ൗ
. 𝟎𝟑 𝟒
𝒋= 𝟏+ −𝟏
𝟏𝟐
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges 3% interest compounded monthly. He
agreed to pay ₱3 000 at the end of every three months for
two years. What is the cash price of the cellphone?
Solution:
2. Solve for 𝑗.

𝒋 = 𝟎. 𝟎𝟎𝟕𝟓𝟏𝟖𝟕𝟔𝟔
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges 3% interest compounded monthly. He
agreed to pay ₱3 000 at the end of every three months for
two years. What is the cash price of the cellphone?
Solution:
3. Determine the kind of annuity illustrated in the problem.

The situation illustrates the present value of the annuity

since we would like to know the present cash price of the
phone. Moreover, it is a general ordinary annuity since the
payment is made at the end of every three months.
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges 3% interest compounded monthly. He
agreed to pay ₱3 000 at the end of every three months for
two years. What is the cash price of the cellphone?
Solution:
4. Solve for the present value of the ordinary annuity.
1 − (1 + 𝑗)−𝑛
𝑃𝑉GOA = 𝑅
𝑗
1 − (1 + 0.007518766)−8
𝑃𝑉GOA = 3 000
0.007518766
 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges 3% interest compounded monthly. He
agreed to pay ₱3 000 at the end of every three months for
two years. What is the cash price of the cellphone?
Solution:

𝑃𝑉GOA = 23, 207.91

 Try It!

Example 2: Jack purchased a cellphone via installment

payment that charges 3% interest compounded monthly. He
agreed to pay ₱3 000 at the end of every three months for
two years. What is the cash price of the cellphone?
Solution:
Thus, the cash price of the cellphone is ₱𝟐𝟑, 𝟐𝟎𝟕. 𝟗𝟏.
 Let’s Practice!

Individual Practice:

1. Mr. Dela Cruz plans to invest money for 15 years. He pays

₱2 500 at the end of every month. The plan earns 3%
interest rate compounded semiannually. How much will
the money be after 15 years?
2. Rihanna would like to buy a gaming computer set payable
via installment for 2 years. How much is the cost of the
computer set if she is to pay ₱2 700 at the end of each
month and the interest of 8% compounded semiannually?
 Let’s Practice!

Individual Practice:

3. Allison wants to buy a new car worth ₱900 000 via

installment. How much should be the regular payments at
the end of every month for five years if the money is
compounded by 5% quarterly?
 Let’s Practice!

Group Practice: To be done in groups of four.

Mrs. Mendoza wants to start a retirement plan. Two

companies offer different policies. In Company A, she should
deposit ₱2 000 at the beginning of every month. Her account
will earn 2.8% interest compounded quarterly. In Company B,
she should deposit ₱6 000 at the end of every three months.
Her account will earn 3.6% interest compounded annually.
Both policies are payable for 20 years. Which of these policies
should she choose?
Key Points

General annuity
1 It is an annuity certain whose compounding period is not the same as the
payment interval.

2 Solving for the Future Value and Present Value of a

General Annuity
1. Identify the given information from the problem.
2. Solve for 𝑛.
3. Solve for j.
4. Compute for the Future Value or Present Value.
Key Points

2 Solving for the Future Value and Present Value of a

General Annuity
The following formulas are used in finding the future value and present value of a
General Ordinary Annuity (GOA).

Future Value of a Present Value of a

General Ordinary Annuity General Ordinary Annuity

(1 + j)𝑛 −1 1 − (1 + j)−𝑛
𝐹𝑉GOA =𝑅 𝑃𝑉GOA =𝑅
𝑗 𝑗
 Synthesis

● How do you compute for the future and present values of

a general annuity?

● How does knowing general annuities help you in your

decision-making regarding finances?

● In your opinion, when do we say that a particular value is

fair to both buyer and seller?