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Annuities: Simple and Compound Annuities

This document discusses simple and compound annuities. A simple annuity has equal payments made at regular intervals where the payment interval is equal to the compounding period. A general annuity has payments made at intervals that are different from the compounding period. Examples are given of simple annuities like monthly house rental with monthly compounding and general annuities like annual investments compounded semiannually. Determining whether situations illustrate simple or general annuities depends on if the payment interval matches the compounding period.

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DanickaRomano
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143 views

Annuities: Simple and Compound Annuities

This document discusses simple and compound annuities. A simple annuity has equal payments made at regular intervals where the payment interval is equal to the compounding period. A general annuity has payments made at intervals that are different from the compounding period. Examples are given of simple annuities like monthly house rental with monthly compounding and general annuities like annual investments compounded semiannually. Determining whether situations illustrate simple or general annuities depends on if the payment interval matches the compounding period.

Uploaded by

DanickaRomano
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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ANNUITIES

Simple and Compound


Annuities
Annuity
- is a sequence of equal payments
made at equal intervals of time.

Payment interval
- is a sequence of equal
payments made at equal intervals
of time. It may be monthly, bimonthly,
quarterly, semiannually, and annually.
Term of annuity
- is the time from the
beginning of the first payment interval
to the day of the last payment.
SIMPLE AND COMPOUND
ANNUITIES

Simple Annuity - is an
annuity in which the payment
interval is equal to the
compounding period.
Examples of Simple Annuity:

1. House rental is an example


of simple annuity since the
payment interval is monthly
and the compounding period is
also monthly.
2. The annuity of P1000 made at the
end of each quarter for a year at 8%
converted quarterly is the sum of the
compound amounts of four P1000
payments accumulated at the end of
one year.

This is an example of simple annuity


since the payment interval is quarterly
and the compounding period is also
quarterly.
General Annuity - is an
annuity in which the
payment interval is
different from the
compounding period.
Examples of General Annuity:
1. A residential mortgage loan
is an example of general
annuity since payments are
made monthly, but the interest
is usually compounded
annually.
2. P2000 invested annually at
8% compounded semiannually
is an example of general
annuity since the payment
interval (annually) is different
from the compounding period
(semiannually).
Determine whether each of the
following situations illustrates
simple or general annuity.
1. Joseph is renting a
condominium. He is paying P3000
per month compounded monthly
at 5% interest.
Simple annuity. His payment interval is
monthly and the compounding period is
also monthly.
2. Leah has a life insurance to
be paid monthly for five years.
Her policy is compounded
semiannually at 10% interest.

General annuity. Her payment


interval is monthly and the
compounding period is semiannually.
Answer these:

Determine whether each


statement illustrates simple or
general annuities. Give the
payment interval and the
compounding period.
1. Alvin has a life
insurance policy. P5000
is paid monthly for five
years and compounded
quarterly at 4% interest.
2. Kyla has a housing
loan. She pays P1500
quarterly and is
compounded annually
at 3% for 10 years..
3. Jun has an educational
plan for his kids. The
monthly payment for the
policy is P2500 to be paid
for five years. The policy is
compounded monthly at
6% interest.
4. Jorge has a loan in a
bank. He pays P1000
monthly for 18 months.
The loan is
compounded annually
at 2% interest.
5. Lhea deposited
P6600 quarterly in an
account that is
compounded quarterly
at 0.5% interest for six
years.
6. Mariel bought an
insurance plan with a
monthly payment of
P2000 for 5 years. The
policy is compounded
monthly at 2% interest.
7. Karina leased a
condominium unit with
a monthly payment of
P15000 for 18 months.
It is compounded
monthly at 2% interest.
8. Jenelyn invested
P3000 monthly for
eight years in an
account that pays 5%
compounded
annually.
9. Josephine is paying
P60000 monthly for her
car loan. The loan is set to
be fully paid after five
years with a 10% interest
compounded annually.
10. Kail availed a
housing loan to be paid
P4500 quarterly. The
loan is compounded
quarterly at 3% interest
for five years.

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