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MODULE 13 - General Annuity

This document discusses ordinary general annuities. It defines an ordinary general annuity as having payments made at the end of unequal payment and compounding intervals, with the first payment after the beginning and last at the end. The document provides examples of monthly car installments with annual interest and semi-annual debt payments with monthly interest. It presents the formulas for finding the future value and present value of ordinary general annuities, which are the same as simple annuities but require converting the interest rate to an equivalent rate per payment interval. Step-by-step solutions demonstrate calculating future and present values for examples.

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Colleen Mae San Diego
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548 views26 pages

MODULE 13 - General Annuity

This document discusses ordinary general annuities. It defines an ordinary general annuity as having payments made at the end of unequal payment and compounding intervals, with the first payment after the beginning and last at the end. The document provides examples of monthly car installments with annual interest and semi-annual debt payments with monthly interest. It presents the formulas for finding the future value and present value of ordinary general annuities, which are the same as simple annuities but require converting the interest rate to an equivalent rate per payment interval. Step-by-step solutions demonstrate calculating future and present values for examples.

Uploaded by

Colleen Mae San Diego
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Welcome to General Mathematics!
Module 10.3:

Ordinary General
Annuity
ICE BREAKER QUESTION

Anong
regalo ang
ayaw mong
matanggap
ngayong
pasko?
Learning Objectives
At the end of this module you will be
able to:
• discuss the basic concepts of annuities;
• distinguish varieties of annuities;
• illustrate simple and general annuities;
• find the future value and present value of simple
annuities and general annuities; and
• calculate the fair market value of a cash flow stream
that includes an annuity
01

02

01 03

04

Definition and 05

Examples 06
Ordinary General Annuity
[General Annuity Immediate]
An ordinary general annuity has the following
characteristics:
• Payments are made at the end of the payment
intervals, and the payment and compounding
frequencies are unequal.
• The first payment occurs one interval after the
beginning of the annuity.
• The last payment occurs on the same date as the end
of the annuity.
Example:

1) Monthly installment of a car with an interest rate


that is compounded annually.
2) Paying a debt semi-annually when the interest is
compounded monthly.
01

02

02 03

Future Value of 04

Ordinary General 05

Annuity 06
Future Value of Ordinary General Annuity
Where,
R – is the regular payment
j - is the equivalent interest
rate per payment interval
n – is the number of
payments
Note: The formula for the future value is just the same as that for a
simple ordinary annuity. The extra step occurs in finding j, the given
interest rate per period must be converted to an equivalent rate per
payment interval.
Example #1
On Nathalie’s 10th birthday, her father started to deposit
P5,000 quarterly at the end of each term in a fund that pays
1% compounded monthly. How much will be in the fund on
Nathalie’s 17th birthday?
Given:

j=?
Solution:
Since payments are quarterly, the interest rate of 1% compounded
monthly must be converted to its equivalent interest rate that is
compounded quarterly.
Solution: (continuation)
Next step is applying the formula in finding the future value of an
ordinary annuity using the computed equivalent rate.

Thus, there will be P144, 833.11 in


the fund.
Example #2
Find the amount of ordinary annuity of P5,000 payable semi-
annually for 10 years if money is worth 9% compounded
annually.
Given:
Solution:
Convert 9% compounded annually to its equivalent interest rate
for each semi-annual payment interval.
Solution: (continuation)
Apply the formula in finding the future value of an ordinary
annuity using the computed equivalent rate.

Thus, amount of annuity is P155, 274.07


after 10 years.
01

03
02

03

Present Value of 04

Ordinary 05

General Annuity 06
Present Value of Ordinary General
Annuity

Where,
R – is the regular payment
j - is the equivalent interest rate per
payment interval
n – is the number of payments
Example #1
Ms. Blanco would like to buy a television set payable
monthly 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?
Given:
Solution:
Convert 9% compounded semi-annually to its equivalent interest
rate for each monthly payment interval.
Solution: (continuation)
Apply the formula in finding the present value of an ordinary
annuity using the computed equivalent rate.

Hence, the cost of the TV set is


Php17, 545.08.
Congratulations
for making it

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