Mathematics

Grade 11 • Unit 13: Simple and General Annuities

LESSON 13.1
Future Value of Simple Annuity
Table of Contents

Introduction 1

Test Your Prerequisite Skills 2

DepEd Competencies 3

Objectives 3

Warm-Up! 3

Learn about It! 4

Annuity 4

Types of Annuity 5

Kinds of Annuity Certain 5

Classifications of Simple Annuity 5

Future Value of a Simple Annuity 6

Future Value of an Ordinary Annuity 6

Future Value of an Annuity Due 7

Let’s Practice 7

Check Your Understanding 15

Key Points 17

Bibliography 18
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Grade 11 • Unit 13: Simple and General Annuities

Lesson 13.1
Future Value of Simple Annuity

Fig. 1. Planning for Investment

Introduction
How often do you save money? Being able to save money is one of the most important skills
that you should have. It is important that you have money to spend especially in emergency
situations such as accidents or theft.

One of the best ways to save money is to invest it. By investing your money in a bank, you can
let your money work for you by earning interest. This is better than just keeping it by yourself.
One way of investing money is through annuities. An annuity is a powerful financial tool for

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Grade 11 • Unit 13: Simple and General Annuities

most insurance companies as well as any buyer to plan for the future. It may involve regular
deposits to a savings account, monthly mortgage payments, insurance premiums, pension
payments, or any other business models involving a series of equal payments at regular
intervals.

In this lesson, you will learn more about the future value of a simple annuity.

Test Your Prerequisite Skills

Before you get started, answer the following items on a separate sheet of paper. This will help
you assess your prior knowledge and practice some skills that you will need in studying this
lesson. Show your complete solution.

1. Evaluate the exponents using the scientific calculator

a. 612
b. 48
c. 215

2. Analyze and solve the following problems.

a. How much interest will Patrick earn in his investment of ₱15 000 at 6% simple interest
for 2 years?
b. Rina borrowed ₱100 000 from a loan company to finance her business. She agreed
to pay the amount together with interest at the end of 3 years at 12% compound
interest per annum. How much did Rina pay at the end of the contract?

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Grade 11 • Unit 13: Simple and General Annuities

DepEd Competencies
At the end of the lesson, you should be able to do the following:

● Illustrate simple and general annuities (M11GM-IIc-1).

● Find the future value and present value of both simple and general
annuities (M11GM-IIc-d-1).

Objectives
At the end of this lesson, you should be able to do the following:

● Correctly describe the future value of a simple annuity.

● Accurately illustrate real-life situations involving the future value of a

simple annuity.

● Accurately solve problems involving the future value of a simple annuity.

Warm-Up!

Keep on Compounding!

Materials
● calculator

Instructions
1. This activity will be done as a triad.

2. Study the following problem:

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Grade 11 • Unit 13: Simple and General Annuities

Patricia deposits ₱100 000 in a bank at the beginning of every year that pays 3%

compounded annually. How much will she have after three years?

3. For the first member, compute for the future value of the ₱100 000 invested in the

first year. The interest is compounded for three years.

4. For the second member, compute for the future value of the ₱100 000 invested in

the second year. The interest is compounded for two years.

5. For the third member, compute for the future value of the ₱100 000 invested in

the third year. The interest is compounded for one year.

6. Add the results obtained by the three members. What do you think this value

represents?

Learn about It!

The activity in Warm-Up! shows what we call a simple annuity.

Annuity

Definition 1.1: An annuity is a sum of money that is paid in

regular equal payments.

Some examples of annuities are installment payments, monthly rentals, and life insurance
premiums. The period of time between consecutive payments is called the payment
interval. The term of an annuity is the time from the beginning of the first payment interval
to the end of the last payment interval. The interval may be of any convenient length like
monthly, quarterly, semiannually, or annually.

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Grade 11 • Unit 13: Simple and General Annuities

Types of Annuities
1. Annuity Certain
It is an annuity payable for a definite duration. It means that this annuity begins and
ends on a definite date.

2. Perpetuity
It is an annuity payable over a term that has a definite start date but no definite end
date. An example of perpetuity is housing rent.

3. Contingent Annuity
It is an annuity payable for an indefinite duration. It means that the beginning or the
termination is dependent on some certain event. Monthly payments of car loans and
insurance are examples of an annuity certain and contingent annuity, respectively.

Kinds of Annuity Certain

1. Simple Annuity
An annuity certain whose compounding period is the same as the payment interval.

2. General annuity
An annuity certain whose compounding period is not the same as the payment
interval. Both simple annuity and general annuity can be classified as an ordinary
annuity or annuity due.

Classifications of Simple Annuity

1. Ordinary Annuity
It is an annuity in which the periodic payment is made at the end of each payment
interval.

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Grade 11 • Unit 13: Simple and General Annuities

2. Annuity Due
It is an annuity in which the periodic payment is made at the beginning of each
payment interval.

Essential Question
What is the future value of a simple annuity?

Future Value of a Simple Annuity

In this lesson, we will focus on the future value of a simple annuity. There are two kinds of
annuity that we should consider—the ordinary annuity and the annuity due. Note that in a
simple annuity, the payment interval and the compounding period are the same.

Definition 1.2: The future value of a simple annuity is the

total of the payments and interests earned at a
certain date in the future.

Future Value of an Ordinary Annuity

We use the following formula to calculate the future value of an ordinary annuity, denoted
by 𝐹𝑉.

(1 + 𝑟)𝑛 − 1
𝐹𝑉 = 𝑃 [ ]
𝑟

where,
𝑃 = periodic payment,

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Grade 11 • Unit 13: Simple and General Annuities

𝑖
𝑟 = rate per period, given by 𝑟 = 𝑚, where 𝑖 is the interest rate and 𝑚 is the number of

compounding periods within a year, and

𝑛 = number of periods given by 𝑛 = 𝑡 ∙ 𝑚, where 𝑡 is the length of the term in years.

Future Value of an Annuity Due

For the future value of an annuity due, denoted by 𝐹𝑉𝐴𝐷 , we use the following formula.

(1 + 𝑟)𝑛 − 1
𝐹𝑉𝐴𝐷 = (1 + 𝑟) ⋅ 𝑃 [ ]
𝑟

where,
𝑃 = periodic payment,
𝑖
𝑟 = rate per period, given by 𝑟 = , where 𝑖 is the interest rate and 𝑚 is the number of
𝑚

compounding periods within a year, and

𝑛 = number of periods, given by 𝑛 = 𝑡 ∙ 𝑚, where 𝑡 is the length of the term in years.

Essential Question
How will you know if the situation illustrates the future value of a simple
annuity?

Let’s Practice
Example 1
What are the periodic payment, rate per period, and the number of periods of quarterly
payment of ₱6 500 for 9 years with an interest rate of 4.5% compounded quarterly?

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Grade 11 • Unit 13: Simple and General Annuities

Solution
Step 1: Determine the periodic payment.

The periodic payment is 𝑷 = 𝟔 𝟓𝟎𝟎.

Step 2: Determine the periodic rate.

The interest rate is 4.5% or 𝑖 = 0.045. The number of compounding periods

within a year is 𝑚 = 4 since compounding is done quarterly. Thus, the periodic
𝑖 0.045
rate is 𝑟 = = = 𝟎. 𝟎𝟏𝟏𝟐𝟓.
𝑚 4

Step 3: Determine the number of periods.

The length of the term is 9 years or 𝑡 = 9. Therefore, the total number of periods
for the whole term is 𝑛 = 𝑚 ⋅ 𝑡 = 4 ⋅ 9 = 𝟑𝟔.

Try It Yourself!
Determine the periodic payment, rate per period, and the number of periods of a monthly
payment of ₱4 000 with an interest rate of 2% compounded monthly for 7 years.

Example 2
Patricia deposits ₱12 200 every end of six months in an account paying 5.5% compounded
semiannually. What amount is in the account at the end of 9 years and 6 months?

Solution
Note that this problem involves a future value, and the payment interval (every six months)

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Grade 11 • Unit 13: Simple and General Annuities

is the same as the compounding period (semiannual). Thus, this is a future value of a simple
annuity. Moreover, the payment is done every end of six months. Thus, this is an ordinary
annuity.

Therefore, we will use the formula for the future value of an ordinary annuity.
Step 1: Identify the given from the problem.

● 𝑃 = 12,200
● 𝑖 = 5.5% = 0.055
● 𝑚 = 2 (i.e. semiannually = 2 times a year)
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● 𝑡=9 = 9.5
12
𝑖 0.055
● 𝑟=𝑚= 2
= 0.0275
● 𝑛 = 𝑡 ∙ 𝑚 = (9.5)(2) = 19

Step 2: Use the formula.

(1 + 𝑟)𝑛 − 1
𝐹𝑉 = 𝑃 [ ]
𝑟
(1 + 0.0275)19 − 1
𝐹𝑉 = 12 200 [ ]
0.0275
(1.0275)19 − 1
𝐹𝑉 = 12 200 [ ]
0.0275
1.674382901 − 1
𝐹𝑉 = 12 200 [ ]
0.0275
0.674382901
𝐹𝑉 = 12 200 [ ]
0.0275
𝐹𝑉 = 12 200(24.5230146)
𝐹𝑉 = 299 180.78

Thus, Patricia will receive ₱299 180.78 at the end of 9 years and 6 months.

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Grade 11 • Unit 13: Simple and General Annuities

Try It Yourself!
Determine the amount after 5 years of a ₱1 500 deposit every end of three months in an
account paying 12% compounded quarterly.

Example 3
Suppose Mr. and Mrs. Bautista deposit ₱10 000 at the beginning of each year for 5 years in
an investment that earns 9% per year compounded annually. What is the amount or future
value of the annuity?

Solution
Note that this problem involves a future value, and the payment interval (every year) is the
same as the compounding period (annual). Thus, this is a future value of a simple annuity.
Since Mr. and Mrs. Bautista deposit at the beginning of each year, it follows that we will use
an annuity due.

Therefore, we will use the formula for the future value of an annuity due.

Step 1: Identify the given from the problem.

● 𝑃 = 10 000
● 𝑖 = 9% = 0.09
● 𝑚 = 1 (i.e. annually = once a year)
● 𝑡=5
𝑖 0.09
● 𝑟=𝑚= 1
= 0.09
● 𝑛 = 𝑡 ∙ 𝑚 = (5)(1) = 5

Step 2: Use the formula.

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Grade 11 • Unit 13: Simple and General Annuities

(1 + 𝑟)𝑛 − 1
𝐹𝑉𝐴𝐷 = (1 + 𝑟) ⋅ 𝑃 [ ]
𝑟
(1 + 0.09)5 − 1
𝐹𝑉𝐴𝐷 = (1 + 0.09) ⋅ 10 000 [ ]
0.09
(1.09)5 − 1
𝐹𝑉𝐴𝐷 = (1.09) ⋅ 10 000 [ ]
0.09
1.538623955 − 1
𝐹𝑉𝐴𝐷 = 10 900 [ ]
0.09
𝐹𝑉𝐴𝐷 = 10 900 (5.98471061)
𝐹𝑉𝐴𝐷 = 65 233.35

Thus, Mr. and Mrs. Bautista will receive ₱65 233.35 after five years.

Try It Yourself!
Mikee invests ₱600 at the beginning of every month in an account where the money is being
compounded at 3% monthly. How much money will she have after 5 years?

More Real-World Problems

Example 4
Ms. Morales deposits ₱75 000 at the end of the year to a financial institution, which gives an
interest of 5% compounded annually for 10 years. She predicts that her money will
accumulate a total of ₱943 341.94. Is she right?

Solution
This problem involves a future value, and the payment interval (every year) is the same as the
compounding period (annual). Thus, this is a future value of a simple annuity. Since Mae
deposits money at the end of the year, it follows that we will use an ordinary annuity.

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Grade 11 • Unit 13: Simple and General Annuities

Step 1: Identify the given from the problem.

● 𝑃 = 75 000
● 𝑖 = 5% = 0.05
● 𝑚 = 1 (i.e. annually = once a year)
● 𝑡 = 10
𝑖 0.05
● 𝑟= = = 0.05
𝑚 1
● 𝑛 = 𝑡 ∙ 𝑚 = (10)(1) = 10

Step 2: Use the formula.

(1 + 𝑟)𝑛 − 1
𝐹𝑉 = 𝑃 [ ]
𝑟
(1 + 0.05)10 − 1
𝐹𝑉 = 75 000 [ ]
0.05
(1.05)10 − 1
𝐹𝑉 = 75 000 [ ]
0.05
1.628894627 − 1
𝐹𝑉 = 75 000 [ ]
0.05
0.6288946268
𝐹𝑉 = 75 000 [ ]
0.05
𝐹𝑉 = 75 000 (12.57789254)
𝐹𝑉 = 943 341.94

Therefore, Ms. Morales is correct that she will have an accumulated amount of ₱943 341.94
after 10 years.

Example 5
Mr. Choi wants to avail insurance with an investment plan. Two known companies offer
different policies.

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Grade 11 • Unit 13: Simple and General Annuities

• In Company A, he has a periodic deposit of ₱8 800 every quarter which earns an 8%

interest compounded quarterly.
• In Company B, he has to deposit ₱2 500 every month, which also earns 8% interest
compounded monthly.

Both policies are payable for 15 years. If Mr. Choi pays at every beginning of the payment
interval, which of these policies should he choose?

Solution
This problem involves a future value, and the payment interval is the same as the
compounding period. Thus, this is a future value of a simple annuity. Since Mr. Choi will
pay at the beginning of each payment interval, then we will use the formula for the future
value of an annuity due.

For Company A:

Step 1: Identify the given from the problem.

● 𝑃 = 8 800
● 𝑖 = 8% = 0.08
● 𝑚 = 4 (i.e. quarterly = 4 times a year)
● 𝑡 = 15
𝑖 0.08
● 𝑟=𝑚= 4
= 0.02
● 𝑛 = 𝑡 ∙ 𝑚 = (15)(4) = 60

Step 2: Use the formula.

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Grade 11 • Unit 13: Simple and General Annuities

(1 + 𝑟)𝑛 − 1
𝐹𝑉𝐴𝐷 = (1 + 𝑟) ⋅ 𝑃 [ ]
𝑟
(1 + 0.02)60 − 1
𝐹𝑉𝐴𝐷 = (1 + 0.02) ⋅ 8 800 [ ]
0.02
(1.02)60 − 1
𝐹𝑉𝐴𝐷 = (1.02) ⋅ 8 800 [ ]
0.02
3.28103078 − 1
𝐹𝑉𝐴𝐷 = 8 976 [ ]
0.02
𝐹𝑉𝐴𝐷 = 8 976 (114.051539)
𝐹𝑉𝐴𝐷 = 1 023 726.62

Thus, Mr. Choi will have ₱1 023 726.62 after 15 years in Company A.

For Company B:

Step 1: Identify the given from the problem.

● 𝑃 = 2 500
● 𝑖 = 8% = 0.08
● 𝑚 = 12 (i.e. monthly = 12 times a year)
● 𝑡 = 15
𝑖 0.08
● 𝑟=𝑚= 12
= 0.006
● 𝑛 = 𝑡 ∙ 𝑚 = (15)(12) = 180

Step 2: Use the formula.

(1 + 𝑟)𝑛 − 1
𝐹𝑉𝐴𝐷 = (1 + 𝑟) ⋅ 𝑃 [ ]
𝑟
(1 + 0.006)180 − 1
𝐹𝑉𝐴𝐷 = (1 + 0.006) ⋅ 2 500 [ ]
0.006

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Grade 11 • Unit 13: Simple and General Annuities

(1.006)180 − 1
𝐹𝑉𝐴𝐷 = (1.006) ⋅ 2 500 [ ]
0.006
3.306921477 − 1
𝐹𝑉𝐴𝐷 = 2 516. 6 [ ]
0.006
𝐹𝑉𝐴𝐷 = 2 516. 6 (346.0382216)
𝐹𝑉𝐴𝐷 = 870 862.86

Thus, Mr. Choi will have ₱870 862.86 after 15 years in Company B

Thus, Mr. Choi should choose Company A because it gives a higher accumulated money
after 15 years.

Try It Yourself!
Lovely deposits ₱12 000 in her savings account at the beginning of every month. The
account earns 0.87% compounded monthly. How much will she receive after 10 years?

Check Your Understanding

1. Complete the table below. Assume all payments are done at the end of the period.

𝑭𝑽 (₱) 𝑷 (₱) 𝒓 𝒎 𝒕

1 200 5% 12 5 years

13 000 3% 6 2 years

5 000 2.5% 4 3 years

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Grade 11 • Unit 13: Simple and General Annuities

2 568.58 8% 4 5 years

1 667.55 12% 6 3 years

2. Complete the table below. Assume all payments are done at the beginning of the
period.

𝑭𝑽 (₱) 𝑷 (₱) 𝒓 𝒎 𝒕

13 103.80 10% 1 5 years

1 404.47 12% 12 3 years

16 200 3.5% 1 5 years

5 600 4% 4 2 years

8 400 5% 2 7 years

3. Analyze and solve the following problems.

a. Find the future value of an ordinary annuity with a regular payment of ₱3 000 at
the end of every quarter and an interest rate of 3% compounded quarterly for 8
years.
b. Suppose you invested ₱4 000 at the beginning of each quarter for over 11 years. If
the money earns 5.8% compounded quarterly, how much money will you have
after the period?
c. Mr. Reyes saves ₱25 000 at the end of every 6 months in the bank that pays 0.25%

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compounded semi-annually. How much will her savings be after 10 years?

d. Mrs. Quanico deposits ₱5 000 at the beginning of every 6 months in a bank account
for her son’s education. The account pays 8% interest compounded semi-annually.
How much will she have in 10 years?

Key Points

● An annuity is the sum of money that is paid in regular equal payments.

○ The payment interval is the period of time between consecutive payments.
○ The term is the time from the beginning of the first payment interval to the end
of the last payment interval.
● There are different types of annuities based on payment duration.
○ An annuity certain is an annuity payable for a definite duration. It means that
this annuity begins and ends on a definite date.
○ A perpetuity is an annuity payable over a term that has a definite start date
but no definite end date.
○ A contingent annuity is an annuity payable for an indefinite duration. It means
that the beginning or the termination is dependent on some certain event.
● There are two kinds of annuity certain.
○ A simple annuity is an annuity certain whose compounding period is the same
as the payment interval.
○ A general annuity is an annuity certain whose compounding period is not the
same as the payment interval.
● There are different types of annuities based on the time of periodic payment.
○ An ordinary annuity is an annuity in which the periodic payment is made at
the end of each payment interval.
○ An annuity due is an annuity in which the periodic payment is made at the

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Grade 11 • Unit 13: Simple and General Annuities

beginning of each payment interval.

● The future value of a simple annuity is the total of the payments and interests
earned at a certain date in the future.
○ We use the following formula to calculate the future value of an ordinary
annuity.

(1 + 𝑟)𝑛 − 1
𝐹𝑉 = 𝑃 [ ]
𝑟

○ We use the following formula to calculate the future value of an annuity due.

(1 + 𝑟)𝑛 − 1
𝐹𝑉𝐴𝐷 = (1 + 𝑟) ⋅ 𝑃 [ ]
𝑟

Bibliography
Kagan, Julia. “Future Value of an Annuity.” Investopedia. Retrieved 12 May 2022 from
https://bit.ly/2DDLj0f

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