Let’s Review!
Differentiate LENDER and
BORROWER.
06/28/2025 05:26 AM ACTS Computer College | Sta. Cruz, Laguna 2
Let’s Review!
Differentiate ORIGIN DATE,
MATURITY DATE and TIME.
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Let’s Review!
Differentiate PRINCIPAL VALUE
and MATURITY VALUE.
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Let’s Review!
Recite the formula for SIMPLE
INTEREST.
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Let’s Review!
Recite the formula for
COMPOUND INTEREST.
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INTEREST PERIOD
COMPOUNDED ANNUALLY- compounded every year
COMPOUNED SEMI-ANNUALLY – compounded twice a year
COMPOUNDED QUARTERLY – compounded four times a year
COMPOUNDED MONTHLY – compounded every month
06/28/2025 05:26 AM ACTS Computer College | Sta. Cruz, Laguna 7
Annuity
It is a sequence of payments made at
equal(fixed) intervals or periods of time.
It is a term that refers to a deposit or
investment agreement between a potential
depositor or investor and a financial
institution that promises to pay out a steady
amount of money over time
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ANNUITIES
According to payment
interval and interest Simple Annuity General Annuity
period payment interval is the same as payment interval is not the same
the interest period as the interest period
According to time of
payment Ordinary Annuity (or Annuity Annuity Due the payments are
Immediate) payments are made made at beginning of each
at the end of each payment payment interval
interval
According to duration
Contingent Annuity
Annuity Certain
payments extend over an
payments begin and end at
indefinite (or indeterminate)
definite times
length of
time
SIMPLE ANNUITY OR GENERAL ANNUITY?
1. Payments are made at the end of each month for
a loan that charges 2.50% interest compounded
quarterly. GENERAL ANNUITY
2. A deposit of Php10, 000 was made at the end of
every three months to an account that earns 5%
interest compounded quarterlySIMPLE ANNUITY
06/28/2025 05:26 AM ACTS Computer College | Sta. Cruz, Laguna 11
ORDINARY ANNUITY OR ANNUITY DUE
1. Ninyo’s monthly mortgage payment is Php10,000 at
the end of each month. ORDINARY ANNUITY
2. The rent of apartment is Php5,000 and due at the
beginning of each month. ANNUITY DUE
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Simple Annuity
the payment interval is
the same as the interest
period.
Definition of Terms
• Term of an annuity, t – time between the first payment interval and last
payment interval
• Regular or Periodic payment, R – the amount of each payment
• Amount (Future Value) of an annuity, F – sum of future values of all the
payments to be made during the entire term of the annuity
• Present value of an annuity, P – sum of present values of all the payments
to be made during the entire term of the annuity
Annuities may be illustrated using a time diagram.
Time Diagram for an n-
Payment Ordinary Annuity
R R R R R … R
0 1 2 3 4 5 n
Amount (Future Value) of ordinary annuity:
The future value F of an ordinary annuity is given by:
where :
R is the regular payment;
j is the interest rate per period
(to compute j just divide the rate (i) by number of conversions
(m);
n is the number of payment
Example 1. Suppose Mrs. Remoto would like to
save P3,000 every month in a fund that gives 9%
compounded monthly. How much is the amount
or future value of her savings after 6 months?
Given:
periodic payment (R) = P3,000
term (t) = 6 months
interest rate = 0.09
number of conversions per year (m) = 12
interest rate per period (j) = 0.0075
number of payment (n) = 6
Find: amount (future value) at the end of the
term, F
Solution.
(1) Illustrate the cash flow in a time diagram.
3000 3000 3000 3000 3000 3000
1 2 3 4 5 6
Given:
periodic payment (R) = P3,000
term (t) = 6 months
interest rate = 0.09
number of conversions per year (m) = 12
interest rate per period (j) = 0.0075
number of payment (n) = 6
Given:
Example 2. In order to save periodic payment (R) =
for her high school P200
term (t) =
graduation, Marie decided to 6 years
interest rate =
save P200 at the end of each 0.00250
number of conversions per year
month. If the bank pays (m) =
0.250% compounded 12
interest rate per period (j) =
monthly, how much will her 0.000208333
number of payment (n) =
money be at the end of 6 72
Find: amount (future value) at
years? the end of the term, F
Given:
periodic payment (R) =
P200
term (t) =
6 years
interest rate =
0.00250
number of conversions per year
(m) =
12
interest rate per period (j) =
0.000208333
number of payment (n) =
72
Find: amount (future value) at
the end of the term, F
Present Value of ordinary annuity:
Where:
R is the regular payment;
j is the interest rate per period;
n is the number of payment
Example 4. Mr. Ribaya paid P200,000 as down
payment for a car. The remaining amount is to be
settled by paying P16,200 at the end of each month
for 5 years. If interest is 10.5% compounded
monthly, what is the cash price of his car?
Given:
down payment = 200,000
R = 16,200 j = 0.00875
i = 0.105 t = 5 years
m = 12 n = mt = (12)(5) = 60 periods
Given:
down payment = 200,000 Find: cash value or cash price of the car. The present
R = 16,200
i = 0.105
value of this ordinary annuity is given by:
m = 12
j = 0.00875
t = 5 years
n = 60 periods
Cash value = Down payment + present value
= 200,000 + 753,702.20
Cash Value = P953,702.20
The cash price of the car is P953,702.20
General Annuity
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, lot, or
house with an interest rate that is compounded
annually
2. Paying a debt semi-annually when the
interest is compounded monthly
Future and Present Value of a General Ordinary Annuity
The future value F and present value P of a general ordinary annuity is given
by:
where:
R is the regular payment;
j is the equivalent interest rate per payment interval converted from the interest
rate per period; and
n is the number of payments
i – rate
payment interval
compounding period
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:
Regular payment = 1,000
= 12
=4
t = 15
i = 6% or 0.06
n = 12(15) = 180 payments
Number of Decimal Places
When solving for an equivalent rate,
say
j = (1.015)1/3 – 1 in Example 1, six or
more decimal places will be used. If
you use fewer or more decimal places,
your answers may differ from the
answers provided in the text. You can
ignore these discrepancies, but it is
suggested that you use at least six
decimal places, or the exact value.
(2) Apply the formula in finding the future
value of an ordinary annuity using the
computed equivalent rate
Given:
Regular payment = 1,000
= 12
=4
t = 15
i = 6% or 0.06
n = 12(15) = 180
payments
Example 2. A teacher saves
P5,000 every 6 months in a
bank that pays 0.25%
compounded monthly. How
much will be her savings after
10 years?
QUESTIONS?
THANK YOU FOR LISTENING,
KEEP SAFE AND GOD BLESS!
06/28/2025 05:27 AM ACTS Computer College | Sta. Cruz, Laguna 31
