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What's More: Quarter 2 - Module 4: Simple and General Annuities

This document discusses simple and general annuities. It provides examples of calculating the future value of annuity payments with monthly and annual compounding. For a simple annuity with monthly payments of ₱3,000 over 4 years at 3% interest compounded monthly, the future value is ₱152,793.63. For a general annuity with monthly payments of ₱2,000 over 5 years at 12% interest compounded annually, the future value is ₱160,682.5. The document also discusses the advantages and disadvantages of annuities, and provides an example calculation of the future value for a monthly contribution of ₱1,000 over 6 months at

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Chelsea Nicole
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84 views4 pages

What's More: Quarter 2 - Module 4: Simple and General Annuities

This document discusses simple and general annuities. It provides examples of calculating the future value of annuity payments with monthly and annual compounding. For a simple annuity with monthly payments of ₱3,000 over 4 years at 3% interest compounded monthly, the future value is ₱152,793.63. For a general annuity with monthly payments of ₱2,000 over 5 years at 12% interest compounded annually, the future value is ₱160,682.5. The document also discusses the advantages and disadvantages of annuities, and provides an example calculation of the future value for a monthly contribution of ₱1,000 over 6 months at

Uploaded by

Chelsea Nicole
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Quarter 2 - Module 4: Simple and General Annuities

*The text color of your answers should be in “BLUE”

What’s More
Activity 1.1

a) Monthly payments of ₱ 3,000 for 4 years with interest rate of 3%


compounded monthly.
Type of Annuity: Simple Annuity
Given:
R = ₱3,000
r = 0.03
t = 4 years
m = 12
n = mt = 12(4) = 48
𝒓 𝟎. 𝟎𝟑
𝒊= =
𝒎 𝟏𝟐
Find: future value
(𝟏+𝒊)𝒏 −𝟏
F=R
𝒊
𝟎.𝟎𝟑 𝟒𝟖
(𝟏+ ) −𝟏
𝟏𝟐
= 3,000 𝟎.𝟎𝟑
𝟏𝟐

= ₱ 152,793.63

₱3,000 ₱3,000 ₱3,000 ₱3,000

48

₱3,000

₱3,000(1.0025)45

₱3,000(1.0025)46

₱3,000(1.0025)47
Activity 1.2

a) Monthly payments of ₱ 2,000 for 5 years with interest rate of 12%


compounded annually. (Type of Annuity: General Annuity)
R = ₱2,000
𝒎𝟏 = 𝟏𝟐
𝒎𝟐 = 𝟏
t = 5 years
𝒓(𝒎𝟐 ) = 𝟎. 𝟏𝟐
𝒏 = (𝒎𝟏 )(𝒕)
𝒏 = (𝟏𝟐)(𝟓)
𝒏 = 𝟔𝟎

Convert 12% compounded annually to its equivalent interest rate for


monthly payment interval.
𝒓(𝒎𝟐 ) 𝒎𝟐⁄𝒎
𝒊 = (𝟏 + ) 𝟏 −𝟏
𝒎𝟐
𝟎. 𝟏𝟐 𝟏⁄
= (𝟏 + ) 𝟏𝟐 − 𝟏
𝟏
𝒊 = 𝟎. 𝟎𝟎𝟗𝟒𝟖𝟖𝟕𝟗

Find the future value.


(𝟏+𝒊)𝒏 −𝟏
F=R 𝒊
(𝟏+𝟎.𝟎𝟎𝟗𝟒𝟖𝟖𝟕𝟗)𝟔𝟎 −𝟏
= 2,000 𝟎.𝟎𝟎𝟗𝟒𝟖𝟖𝟕𝟗
F = ₱160,682.5

₱2,000 ₱2,000 ₱2,000 ₱2,000

60

₱2,000

₱2,000(1.00948879)57

₱2,000(1.00948879)58

₱2,000(1.00948879)59
What I Have Learned
D. Being aware with the two types of annuities help you in different transactions
that you will encounter in the future. What are the advantages and
disadvantages of these annuities?
One of the most appealing features of an annuity might be the ability
to receive income payments for life. To do so, you invest money in an annuity
and instruct the insurer to pay you monthly, quarterly, or annually. No matter
how long you live, those payments should continue if you choose lifetime
payments. Those payments can potentially replace the income you earned
in your working years, and monthly payments may feel similar to monthly
wages in your working years. Annuities may provide a guaranteed return on
your investment. For example, fixed annuities have a stated interest rate, and
the insurance company pays you that amount annually. The amount may
change over time, or you may receive a set rate for several years.

The disadvantages of annuities are that Annuities have features that


cost money. Adding optional riders can increase the cost. When you add up
the cost of underlying contract charges, riders, and investments inside of an
annuity, the all-in charges can be quite high. Be sure that it makes sense to
pay for everything you’re buying. Investing in an annuity may require a long-
term commitment. If you want to cash out (if you change your mind or need
money), it could cost you. Annuities typically offset the commissions they
pay to sales agents with surrender charges, which are fees you pay to
withdraw money during the early years of your contract. Those charges may
last 10 years or more, and a lot can happen in that time.

What I Can Do

Your mother plans to join the employee’s cooperative. She wants to know how
much her money would earn in six months. The cooperative requires a monthly
contribution of Php1000.00 starting June 2020, with a compounded interest rate
of 3%. How much will your mother’s money be by December2020?

R = Php1000.00
r = 0.03
t = 6 months
m = 12
n = mt = (12)(0.5) = 6
𝒓 𝟎. 𝟎𝟑
𝒊= =
𝒎 𝟏𝟐
Find: future value
(𝟏+𝒊)𝒏 −𝟏
F=R
𝒊
𝟎.𝟎𝟑 𝟔
(𝟏+ ) −𝟏
𝟏𝟐
= 1000 𝟎.𝟎𝟑
𝟏𝟐

= ₱ 6037.63

₱1,000 ₱1,000 ₱1,000 ₱1,000

₱1,000

₱1,000(1.0025)3

₱1,000(1.0025)4

₱1,000(1.0025)5

Conclusion:

I therefore conclude that my mom should consider that one of the key principles of
investing is to never invest without a purpose. There are many reasons for that, but
the big one is that without a specific purpose in mind, you can’t really assess your
timeframe for investing and how much risk you’re willing to take on, both of which
are vital questions when it comes to investing. What’s her goal? Why is she doing
this? She should figure that out before she invests a dime.

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