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Distinguishing Between Simple and General Annuities

This document provides examples to distinguish between simple and general annuities. A simple annuity has equal payments that are made at regular intervals, with interest compounded over the same period. A general annuity has payments that are made at regular intervals but interest is compounded over a different period than the payment interval. The document tests the reader's understanding by providing situations and asking them to identify whether each illustrates a simple annuity, general annuity, or neither.

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Ernie Caracas Lahaylahay
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© © All Rights Reserved
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1K views

Distinguishing Between Simple and General Annuities

This document provides examples to distinguish between simple and general annuities. A simple annuity has equal payments that are made at regular intervals, with interest compounded over the same period. A general annuity has payments that are made at regular intervals but interest is compounded over a different period than the payment interval. The document tests the reader's understanding by providing situations and asking them to identify whether each illustrates a simple annuity, general annuity, or neither.

Uploaded by

Ernie Caracas Lahaylahay
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Name:____________________________________________________________

Distinguishing between Simple and General Annuities

1. It is the time from the beginning of the first payment period to the end of the last payment period.

a. term of an b. simple c. future d. payment


annuity annuity value interval

2. It is a sequence of equal periodic payments which are made at equal intervals of time.
a. compound interest b. Amortization c. Annuity d. simple interest
3. It is an annuity in which the payment interval is different from the compounding period.
a. future value b. payment interval c. simple annuity d. general annuity

4. Which of the following statements is true about the situation below?


Joseph has a monthly payment of his house rental compounded monthly at 2% interest for two years

a. It illustrates b. It illustrates both c. It illustrates d. It illustrates simple


neither simple nor simple and general general annuity. annuity.
general annuity. annuity.
5. Which of the following statements is true about the situation below?
Manilyn invested ₱₱15 000 in a bank semiannually. Her investment is compounded annually at 4% interest
for 10 years.

a. It illustrates b. It illustrates c. It illustrates simple d. It illustrates both


general annuity. neither simple nor annuity. simple and general
general annuity. annuity
6. Which of the following statements is true about the situation below?
Rowell did a bimonthly investment of ₱₱5000 for 36 months. The investment was compounded monthly at
5% interest.

a. It illustrates simple b. It illustrates c. It illustrates d. It illustrates both


annuity. general annuity. neither simple nor simple and general
general annuity. annuity.
7. The following statements illustrate general annuities except _.
a. Jorge has a loan in a bank. He pays ₱₱1000 monthly for 18 months. The loan is compounded annually
at 2% interest.
b. Jordan has a life insurance policy. ₱₱5000 is paid monthly for five years and compounded quarterly at
4% interest.
c. Jun has an educational plan for his kids. The monthly payment for the policy is ₱₱2500 to be paid for
five years. The policy is compounded monthly at 6% interest.
d. Jose has a housing loan. He pays ₱₱1500 quarterly and is compounded annually at 3% interest for 10
years.
8. The following statements are simple annuities except _.
a. Jenelyn invested ₱₱3000 monthly for eight years in an account that pays 5% compounded annually.
b. Karina leased a condominium unit with a monthly payment of ₱₱15 000 for 18 months. It is
compounded monthly at 2% interest.
c. Mariel bought an insurance plan with a monthly payment of ₱₱2000 for 5 years. The policy is
compounded monthly at 2% interest.
d. Lhea deposited ₱₱6600 quarterly in an account that is compounded quarterly at 0.5% interest for six
years.
9. Which of the following does not illustrate general annuity?.
a. The Love All Company invested ₱₱13 000 to be paid quarterly for two years at 4% interest
compounded monthly. After two years, the investment interest will become 3% compounded annually
for five years.
b. Jonalyn deposited ₱₱1000 monthly in an account that pay 3% quarterly for 18 months. After 18
months, she continued to deposit ₱₱1000 monthly with the same compounding terms for another 24
months.
c. Morgan purchased a laptop to be paid for six years. His monthly payment will be ₱150 at 5% interest
compounded bimonthly for two years. After two years, he will be paying ₱130 at 6% interest
compounded annually up to the end of payment.
d. Magie has a policy worth ₱₱2000 to be paid monthly. The policy is compounded monthly at 2%
interest for five years. At the end of the payment, she wants to extend her policy compounded monthly
at 3% interest for another three years with a monthly payment of ₱₱1000.
10. Categorize the following situations as general or simple annuity.
Category
 General Annuity
 Simple Annuity
a. Anne invests ₱₱10 000 bimonthly in a mutual fund that pays 5% interest quarterly. The mutual fund
has a holding period of at least three years
b. Kail availed a housing loan to be paid ₱₱4500 quarterly. The loan is compounded quarterly at 3%
interest for five years.
c. Josephine is paying ₱₱60 000 monthly for her car loan. The loan is set to be fully paid after five years
with a 10% interest compounded annually.
d. Rina invested in an educational plan for her daughter. She is paying ₱₱1500 monthly. The investment is
compounded monthly at 3% interest for ten years.

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