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Annuities for Grade 11 Senior High School Students

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Annuity – a sequence of payments made at equal the end of each month, for six months, in a fund

(fixed) intervals or periods of time that gives 9% compounded monthly. How much is

Payment interval – the time between successive the amount or future value of her savings after 6

payments months?

2. In order to save for her high school graduation,

Annuities may be classified in different ways, as follows. Marie decided to save P200 at the end of each

Annuities month. If the bank pays 0.250% compounded

According to Simple Annuity General Annuity monthly, how much will her money be at the end of

payment An annuity An annuity 6 years?

interval and where the where the 3. Suppose Mr. Lee would like to know the present

interest period payment payment is not value of her monthly deposit of P3,000 when

interval is the the same as the interest is 9% compounded monthly. How much is

same as the interest period the present value of her savings at the end of 6

interest period months?

According to Ordinary Annuity Due

time of Annuity A type of

payment A type of annuity in The cash value of cash price is equal to the down

annuity in which the payment plus the present value of the installment

which the payments are payments. (CASH VALUE = Down Payment + P)

payments are made at

made at the beginning of

end of each each payment 4. Mr. Ribaya paid P200,000 as down payment for a

payment interval car. The remaining amount is to be settled by

interval paying P16,200 at the end of each month for 5

According to Annuity Certain Contingent years. If interest is 10.5% compounded monthly,

duration An annuity in Annuity what is the cash price of his car?

which An annuity in 5. Paolo borrowed P100,000. He agrees to pay the

payments begin which the principal plus interest by paying an equal amount of

and end at payments money each for 3 years. What should be his annual

definite times extend over an payment if interest is 8% compounded annually?

indefinite

length of time ACTIVITY

Find the present value P and amount F of the following

Term of an annuity, t – time between the first payment ordinary annuities

interval and last payment interval 1. Quarterly payments of P2,000 for 5 years with

Regular or Periodic payment, R – the amount of each interest rate of 8% compounded quarterly

payment 2. Semi-annually payments of P8,000 for 12 years with

Amount (Future Value) of an annuity, F – sum of future interest rate of 12% compounded semi-annually

values of all payments to be made during the entire Answer the following problems.

term of the annuity 3. Peter started to deposit P5,000 quarterly in a fund

Present value of an annuity, P – sum of present values that pays 1% compounded quarterly. How much will

of all the payments to be made during the entire term be in the fund after 6 years?

of the annuity 4. The buyer of a lot pays P50,000 cash and P10,000

every month for 10 years. If money is 8%

ORDINARY ANNUITY compounded monthly, how much is the cash value

(1 + 𝑗)𝑛 − 1 of the lot?

𝐹= 𝑅 5. How much should be invested in a fund each year

𝑗

1 − (1 + 𝑗)−𝑛 paying 2% compounded annually to accumulate

𝑃=𝑅 P200,000 in 5 years?

𝑗

GENERAL ANNUITY Example:

1. Mr. Ribaya Received two offers on a lot that he

General Annuity – an annuity where the payment wants to sell. Mr. Ocampo has offered P50,000 and

interval is not the same as the interest compounding P1,000,000 lump sum payment 5 years from now.

period. Mr. Cruz has offered P50,000 plus P40,000 every

General Ordinary Annuity – a general annuity in which quarter for five years. Compare the fair market

the periodic payment is made at the end of the values of the two offers if money can earn 5%

payment interval. compounded annually. Which offer has a higher

market value?

2. Company A offers P150,000 at the end of 3 years

General Ordinary Annuity plus P300,000 at the end of 5 years. Company B

(1 + 𝑗)𝑛 − 1 offers P25,000 at the end of each quarter for the

𝐹= 𝑅 next 5 years. Assume that money is worth 8%

𝑗

1 − (1 + 𝑗)−𝑛 compounded annually. Which offer has a better

𝑃=𝑅 market value?

𝑗

Activity

Find the present value and amount F of the following.

Example: 1. Semi-annual payments of P500 at the end of each

1. Mel started to deposit P1,000 monthly in a fund term for 10 years with interest rate of 5%

that pays 6% compounded quarterly. How much will compounded semi-annually

be in the fund after 15 years? 2. Annual payments of P1,000 at the end of each term

2. A teacher saves P5,000 every 6 months in a bank for 8 years with interest rate of 6% compounded

that pays 0.25% compounded monthly. How much quarterly

will be her savings after 10 years? Answer the following problems.

3. Ken borrowed an amount of money from Kat. He 3. On a girl’s 10th birthday, her father started to

agrees to pay the principal plus interest by paying deposit P5,000 quarterly at the end of each term in

P38,973.76 each year for 3 years. How much money a fund that pays 1% compounded monthly. How

did he borrow if interest is 8% compounded much will be in the fund on his daughters 17th

quarterly? birthday?

4. Mrs. Remoto would like to buy a television set 4. The buyer of a lots pays P10,000 every month for 10

payable for 6 months starting at the end of the years. If money is 8% compounded annually, how

month. How much is the cost of the TV set if her much is the cash value of the lot?

monthly payment is P3,000 and interest is 9% 5. In order to save for her high school graduation,

compounded semi-annually? Kathrina decided to save P200 at the end of every

three month, starting the end of the second month.

If the bank pays 0.250% compounded monthly, how

A cash flow is a term that refers to payments received much will be her money at the end of 5 years?

(cash inflows) or payments or deposits made (cash 6. Mr. Bajada paid P200,000 as down payment for a

outflows). Cash inflows can be represented by positive farm. The remaining amount is to be settled by

numbers and cash outflows can be represented by paying P16,200 at the end of each month for 5

negative numbers. years. If interest is 5% compounded semi-annually,

what is the cash price of his farm?

7. A television set is for sale at P13,499 in cash or on

The fair market value or economic value of a cash flow installment terms, P2,500 each month for the next 6

(payment stream) on a particular date refers to a single months at 9% compounded annually. If you were

amount that is equivalent to the value of the payment the buyer, what would you prefer, cash or

stream at that date. This particular date is called the installment?

focal date.

DEFERRED ANNUITY Fill in the blanks in the statements that follow.

6. A loan is P30,000 is to be repaid monthly for 5 years

Deferred annuity – an annuity that does not begin until that will start at the end of 4 years. If interest rate is

a given time interval has passed 12% converted monthly, how much is the monthly

Period of Deferral – time between the purchase of an payment?

annuity and the start of the payments for the deferred a. The type of annuity illustrated in the problem is

annuity a ___________________.

b. The total number of payments is ___________.

Present value of a deferred annuity c. The number of conversion periods in the period

of deferral is _________________.

d. The interest rate per period is _____________.

1 − (1 + 𝑗)−(𝑘+𝑛) 1 − (1 + 𝑗)−𝑘

𝑃=𝑅 −𝑅 e. The present value of the loan is ____________.

𝑗 𝑗

Where

Answer the following problems completely

R = regular payment

7. Emma availed of a cash loan that gave her option to

i = interest rate per period

pay P10,000 monthly for 1 year. The first payment is

n = is the number of payments

due after 6 months. How much is the present value

k = number of conversion periods in the period

of the loan if the interest rate is 12% converted

of deferral

monthly?

Example

8. Adrian purchased a laptop through the credit

1. On his 40th birthday, Mr. Ramos decided to buy a

cooperative of their company. The cooperative

pension plan for himself. This plan will allow him to

provides an option for a deferred payment. Adrian

claim P10,000 quarterly for 5 years starting 3

decided to pay after 4 months of purchase. His

months after his 60th birthday. What one-time

monthly payment is computed as P3,500 payable in

payment should he make on his 40th birthday to pay

12 months. How much is the cash value of the

off this pension plan, if the interest rate is 8%

laptop if the interest rate is 8% convertible

compounded quarterly?

monthly?

2. A credit card company offers a deferred payment

option for the purchase of any appliance. Rose

plans to buy a smart TV set with monthly payments

of P4,000 for 2 years. The payments will start at the

end of 3 months. How much is the cash price of the

TV set if the interest rate is 10% compounded

monthly?

Activity

Find the period of deferral in each of the following

deferred annuity problem (one way to find the period

of deferral is to count the number of artificial

payments)

1. Monthly payments of P2,000 for 5 years that will

start 7 months from now

2. Annual payments of P8,000 for 12 years that will

start 5 years from now

3. Quarterly payments of P5000 for 8 years that will

start two years from now

4. Semi-annual payments of P60,000 for 3 years that

will start 5 years from now

5. Payments of P3000 every 2 years for 10 years

starting at the end of 6 years

Source: General Mathematics TG 2016

Prepared by: SHS Mathematics Department

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