GENERAL

ANNUITY
Learning Objective
• Solve problems involving general annuity
Types of Annuity Certain
 Simple Annuity
 The interest conversion period (𝑚) is equal to the
payment interval (𝑝𝑖)
 𝑚 = 𝑝𝑖
 General Annuity
 The interest conversion period (𝑚) is not equal to the
payment interval (𝑝𝑖)
 𝑚 ≠ 𝑝𝑖
Equivalent Rates
Case 1

To determine the compound interest rate

equivalent to another compound interest rate.

𝑚
𝐺 𝑚𝑒
𝑒𝑞 = 𝑚𝑒 1+ − 1 x 100
𝑚
Amount or Sum of General Annuity
𝑛
(1 + 𝑗) −1
𝑆𝑔 = 𝑅
𝑗
where:
𝑆𝑔 = amount or sum of general annuity
𝑅 = periodic payment
𝑗 = equivalent interest rate per payment interval
𝑛 = conversion period of the whole term, 𝑛 = 𝑡𝑚
Present Value of General Annuity
−𝑛
1 − (1 + 𝑗)
𝐴𝑔 = 𝑅
𝑗
where:
𝐴𝑔 = present value of general annuity
𝑅 = periodic payment
𝑗 = equivalent interest rate per payment interval
𝑛 = conversion period of the whole term, 𝑛 = 𝑡𝑚
General Annuity
Example 1

Mel started to deposit P1,000 monthly (every end

of the period) in a fund that pays 6% compounded
quarterly. How much will be in the fund after 15
years?
General Annuity
Example 2

A teacher saves P5000 every 6 months in a bank

that pays 4.25% compounded monthly. How much
will be her savings after 10 years?
General Annuity
Example 3

Ken borrowed an amount of money from Kat. He

agrees to pay the principal plus the interest by
paying P38 973.76 each year for 3 years. How
much money did he borrow if interest is 8%
compounded quarterly?
General Annuity
Example 4

On a girl’s 10th birthday, her father started to

deposit P5000 quarterly at the end of each term in
a fund that pays 10% compounded monthly. How
much will be in the fund in his daughter’s 17th
birthday.
SEATWORK:
1. The buyer of a lot pays P10 000 every month for 10 years. If
money is 8% compounded annually, how much is the cash value
of the lot?
2. In order to save for her high school graduation, Kathrina decided
to save P500 at the end of every other month, starting the end of
the second month. If the bank pays 2.5% compounded monthly,
how much will be her money at the end of 5 years?
3. Mr. Bajada paid P200 000 as down payment for a farm. The
remaining amount is to be settled by paying P16 200 at the end of
each month for 5 years. If interest is 5% compounded semi-
annually, what is the cash price of his farm?