SIMPLE ANNUITY

Simple Annuity is a type of annuity in

which the payment period is the same as
the interval period (conversion period).

Example: Monthly payment where interest

is compounded monthly
SIMPLE ANNUITY

Payment period refers to the time between

successive period of annuity.

Term refers to time from the start of the first

payment up to the last payment.

Periodic Payment (R) is the size of each annuity

payment
SIMPLE ANNUITY

The Future Value of an Annuity is the total

accumulation of the payments and interest
earned. The present value of an annuity is
the principal that must be invested today to
provide the regular payment of an annuity.
SIMPLE ANNUITY
Present Value

Where:
● P-Present Value
● R-periodic payment
● r -interest rate per period; where i=r/m
● i-annual rate
● m-number of conversion period in a year
● n-total number of conversion periods
n = mt
● t-number of years
SIMPLE ANNUITY
Future Value

Where:
● F-Future Value or Amount
● R-Periodic Payment
● r-interest rate per period where i =r/m
● i-annual rate
● m-number of conversion period in a year
● n-total number of conversion periods
n = mt
● t-number of years
SIMPLE ANNUITY
EXAMPLE 1
You decided to join a Kabataan Savers Club which aims
for financial growth of the youth nowadays. If you pay
₱1,000.00 at the end of each month for 5 months on
account that pays interest at 12% compounded monthly,
how much money will you have after 5 months?

(1) Since the interest conversion is equal or the

same as the payment interval so we will use simple
annuity.
SIMPLE ANNUITY
EXAMPLE 1
You decided to join a Kabataan Savers Club which aims
for financial growth of the youth nowadays. If you pay
₱1,000.00 at the end of each month for 5 months on
account that pays interest at 12% compounded monthly,
how much money will you have after 5 months?
SIMPLE ANNUITY
EXAMPLE 1
You decided to join a Kabataan Savers Club which aims
for financial growth of the youth nowadays. If you pay
₱1,000.00 at the end of each month for 5 months on
account that pays interest at 12% compounded monthly,
how much money will you have after 5 months?

Since we will find the amount of money after 5

months, we will use the formula:
SIMPLE ANNUITY
EXAMPLE 1
You decided to join a Kabataan Savers Club which aims
for financial growth of the youth nowadays. If you pay
₱1,000.00 at the end of each month for 5 months on
account that pays interest at 12% compounded monthly,
how much money will you have after 5 months?

Then substituting all the given facts, we will obtain:

Future Value = ₱5,101.01

SIMPLE ANNUITY
EXAMPLE 2
You decided to join a Kabataan Savers Club which aims
for financial growth of the youth nowadays. If you pay
₱1,000.00 at the end of each month for 5 months on
account that pays interest at 12% compounded monthly,
how much money will you have after 5 months?

Contrast in calculating the future value, a present

value (PV) tells you how much money would be
required now to produce a series of payments in the
future, again assuming a set interest rate.
SIMPLE ANNUITY
EXAMPLE 2
You decided to join a Kabataan Savers Club which aims
for financial growth of the youth nowadays. If you pay
₱1,000.00 at the end of each month for 5 months on
account that pays interest at 12% compounded monthly,
how much money will you have after 5 months?

Using the same example above, the given is as follows:

SIMPLE ANNUITY
EXAMPLE 2
You decided to join a Kabataan Savers Club which aims
for financial growth of the youth nowadays. If you pay
₱1,000.00 at the end of each month for 5 months on
account that pays interest at 12% compounded monthly,
how much money will you have after 5 months?

Since we are looking for the present value, we use the

formula
SIMPLE ANNUITY
EXAMPLE 2
You decided to join a Kabataan Savers Club which aims
for financial growth of the youth nowadays. If you pay
₱1,000.00 at the end of each month for 5 months on
account that pays interest at 12% compounded monthly,
how much money will you have after 5 months?

By substituting it in the formula, we will obtain

Present Value = ₱4,853.43

SIMPLE ANNUITY

As you can notice, future value is higher than the

present value. This is because of the time value of
money—the concept that any given sum is worth
more now than it will be in the future because it can
be invested in the present.
SIMPLE ANNUITY

The Cash Value or Cash Price is equal to the down

payment (if there is any) plus the present value of
the installment payments.
SIMPLE ANNUITY
EXAMPLE 3
Mr. Angeles paid ₱200,000.00 as a downpayment for a car.
The remaining amount is to be settled by paying ₱ 16,200.00
by the end of each month for 5 years. If interest is 10.5%
compounded monthly, what is the cash price of his car?

To solve this, let us identify the given:

SIMPLE ANNUITY
EXAMPLE 3
Mr. Angeles paid ₱200,000.00 as a downpayment for a car.
The remaining amount is to be settled by paying ₱ 16,200.00
by the end of each month for 5 years. If interest is 10.5%
compounded monthly, what is the cash price of his car?

Obtain the present value of the car by plugging the given in

our formula
SIMPLE ANNUITY
EXAMPLE 3
Mr. Angeles paid ₱200,000.00 as a downpayment for a car.
The remaining amount is to be settled by paying ₱ 16,200.00
by the end of each month for 5 years. If interest is 10.5%
compounded monthly, what is the cash price of his car?

Obtain the present value of the car by plugging the given in

our formula

The present value of the car is ₱ 753,702.20

SIMPLE ANNUITY
EXAMPLE 3
Mr. Angeles paid ₱200,000.00 as a downpayment for a car.
The remaining amount is to be settled by paying ₱ 16,200.00
by the end of each month for 5 years. If interest is 10.5%
compounded monthly, what is the cash price of his car?

To get the cash value, simply add the obtained present

value and the downpayment made, so;

CV= 200,000 + 753,702.20

The total cash value of the car is ₱ 973,702.20

SIMPLE ANNUITY
EXAMPLE 4
Mr. Edgar borrowed from his friend ₱ 200,000.00 He promised
to pay the amount plus its interest by an equal amount of
money each year for 3 years. What must be his annual
payment if they agreed on an interest of 10% compounded
annually?

This example is different from the examples presented above.

This time, you are going to compute the Regular periodic
payment. We will be manipulating the formula of present
value to obtain the formula for the periodic payment.
SIMPLE ANNUITY
EXAMPLE 4
Mr. Edgar borrowed from his friend ₱ 200,000.00 He promised
to pay the amount plus its interest by an equal amount of
money each year for 3 years. What must be his annual
payment if they agreed on an interest of 10% compounded
annually?
SIMPLE ANNUITY
EXAMPLE 4
Mr. Edgar borrowed from his friend ₱ 200,000.00 He promised
to pay the amount plus its interest by an equal amount of
money each year for 3 years. What must be his annual
payment if they agreed on an interest of 10% compounded
annually?
SIMPLE ANNUITY
EXAMPLE 4
Mr. Edgar borrowed from his friend ₱ 200,000.00 He promised
to pay the amount plus its interest by an equal amount of
money each year for 3 years. What must be his annual
payment if they agreed on an interest of 10% compounded
annually?

Given:
● P= ₱ 200,000.00
● i= 0.10
● n= 3
SIMPLE ANNUITY
EXAMPLE 4
Mr. Edgar borrowed from his friend ₱ 200,000.00 He promised
to pay the amount plus its interest by an equal amount of
money each year for 3 years. What must be his annual
payment if they agreed on an interest of 10% compounded
annually?

Substituting the values to our formula, we get,

Mr Edgar must pay ₱ 80,422.96 every year.

GENERAL ANNUITY

General Annuity is a type of annuity in which the

payment period is not the same as the interval
period (conversion period).
GENERAL ANNUITY
● 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
GENERAL ANNUITY
SAMPLE

A four-year lease agreement between Alfred and

Thrifty Mall Inc. (TMI) indicates that, Alfred pays
TMI ₱100,000.00 at the end of every year if the
agreed interest rate is 5% compounded quarterly

In this example, the payment period is a whole

year. However, the interest period is quarterly or
every 3 months. Hence, the annuity is a general
annuity.
GENERAL ANNUITY

In General Ordinary Annuities, payments are

made at the end of each time period. With
annuities due, they're made at the beginning.
 GENERAL ANNUITY
Future Value

Where:
● R - regular payment
● r - interest rate per period; where i=r/m
● i - annual rate
● m- number of conversion period in a year
● n - total number of conversion periods
● n = t(m)
● t – number of years
● b = p/c, where p is the number of months in a payment interval and
c is the number of months in a compounding period.
 GENERAL ANNUITY
Present Value

Where:
● R - regular payment
● r - interest rate per period; where i=r/m
● i - annual rate
● m- number of conversion period in a year
● n - total number of conversion periods
● n = mt
● t – number of years
● b = p/c, where p is the number of months in a payment interval
and c is the number of months in a compounding period.
 GENERAL ANNUITY
EXAMPLE 1
What is the present value of an annuity of ₱ 2,000.00
payable annually for 9 years if the money is worth 5%
compounded quarterly.
 GENERAL ANNUITY
EXAMPLE 1
What is the present value of an annuity of ₱ 2,000.00
payable annually for 9 years if the money is worth 5%
compounded quarterly.

Using the formula in getting the present value of general

annuity we will obtain:
 GENERAL ANNUITY
EXAMPLE 1
What is the present value of an annuity of ₱ 2,000.00
payable annually for 9 years if the money is worth 5%
compounded quarterly.

then substituting the given facts, we will obtain

we will obtain ₱14,155.99 as the present value of

general annuity.
 GENERAL ANNUITY
EXAMPLE 2
What is the future value of an annuity of ₱ 2,000.00
payable annually for 9 years if the money is worth 5%
compounded quarterly.

Given:
 GENERAL ANNUITY
EXAMPLE 2
What is the future value of an annuity of ₱ 2,000.00
payable annually for 9 years if the money is worth 5%
compounded quarterly.

Using the formula for future value for general annuity:

 GENERAL ANNUITY
EXAMPLE 2
What is the future value of an annuity of ₱ 2,000.00
payable annually for 9 years if the money is worth 5%
compounded quarterly.

And substituting the given to the formula, we will have

Future Value is ₱ 22,139.17