APPLICATIONS OF ANNUITIES

for General Mathematics

Senior High School (CORE)
Quarter 2 / Week 3

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 FOREWORD

This self-learning kit will serve as a guide in studying the

subject area General Mathematics. Guided by the Most
Essential Learning Competencies (MELC) it will be used as
an aid in learning Simple and General Annuities. Hence, it
illustrates and distinguishes simple and general annuities.
In this learning kit, students will gain knowledge in
defining and illustrating simple and general annuities.

I. What Happened
This section contains pre-activities like review of the
prior knowledge and a pre-test on what the learners have
learned in their previous discussions.

II. What You Need To Know

This section contains the discussion in finding the future
and present value of both simple annuities and general
annuities with the representation of a cash flow stream and
the present value and period of deferral of a deferred
annuity. It gives examples with its corresponding solutions
that clearly illustrate the applicability of a mathematical
concept.

III. What Have I Learned

The exercises contained in this section are guaranteed
to build mathematical comprehension, skills and
competence. These serve as a diagnostic tool to identify
the learners’ areas of strengths and difficulties.

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 FINDING THE FUTURE VALUE AND PRESENT VALUE
LESSON
OF BOTH SIMPLE AND GENERAL ANNUITIES WITH
1
THE REPRESENTATION OF A CASH FLOW STREAM

OBJECTIVES:
K. Differentiates the future value from the present
value.
S. Calculates the future value and present value
with the use of a formula or a cash flow stream.
A. Holds the character of patience in solving the
future value and present value of the following
types of annuity dues.

LEARNING COMPETENCIES:

Finds the future value and present value of both simple

annuities and general annuities (M11GM-IIc-d-1)
Calculates the fair market value of a cash flow stream
that includes an annuity (M11GM-IId-2)

I. WHAT HAPPENED

QUICK RECALL
Annuities
can be classified according to payment
interval and interest period

Simple Annuity General Annuity

Payment interval = interest period Payment interval ≠ interest period

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PRE-TEST:
Problem-Solving:
1. Mc Julius made yearly deposits of P75,000 at a bank that has 9% interest
compounded annually, for 2 years. Find the present value.

2. Alex made payments of P10,000 at the beginning of every year. If the

company’s interest rate is 6% compounded monthly, what is the future
value after 3 years?

II. WHAT YOU NEED TO KNOW

Simple annuity are annuities when the compounding period is equal to
the payment period while general annuity are annuities where the
compounding period is not equal to the payment period.
There are examples of annuities like deposits to a savings account,
monthly housing or car mortgages payment, insurance payments, pension or
retirement products, credit cards purchase, loans, and debts.
In this section, we will learn how to calculate the future value and
present value of the following types of annuities.

DISCUSSION
FUTURE VALUE OF SIMPLE ANNUITY

The future value of a simple annuity is the amount of money one has at
the end of the term or the value of the last day of payment. The higher the
discount rate, the higher the future value of the annuity. To find the future
value, we can either use one of the two solutions.
1. Use Time Diagram of the Cash flow or a Cash flow stream
2. Use the formula:
( 1 + i )n - 1
FV = C [ ]
i
Where:
C = Periodic payment
i = interest rate
n = no. of period x no. of years

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Example:
Duke is receiving P2,000 annually for the next 5 years and he invested
each payment at 5%. How much would Duke have at the end of the five-year
period?
Given:
C = P2,000
i = 5% to 0.05
n = no. of period (1, annually) x no. of years (5)
Solution 1 Cash Flow
0 1 2 3 4 5

FV = 2,000 + 2,100 + 2,205 + 2,315.25 + 2,431.0125

= P11,051.2625
Note: This method will only work within a problem with a minimal term of
annuity.

Solution 2 Using the formula

( 1 + i )n - 1
FV = C [ ]
i
( 1 + 0.05 )5 - 1
FV = 2000 [ ]
0.05
0.2762815625
FV = 2000 [ ]
0.05

FV = 2000 (5.52563125)
FV = ₱ 11 051.2625

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PRESENT VALUE OF SIMPLE ANNUITY
The present value of an annuity is the current value of future payments
from an annuity, given a specified rate of return. The higher the discount rate,
the lower the value of the annuity. To find the present value, we can either use
one of the two solutions.
1. Use Time Diagram of the Cash flow or a Cash flow stream
2. Use the formula:
-mt where:
i
1- (1+ m) C = periodic payment
PV = C t = no. of years
i
[ m ] i = interest rate
m = no. of compounding

Example:
Suppose Mrs. Mariño would like to know the present value of her monthly
deposit of P3,000 when interest is 9% compounded monthly. How much is the
present value of her savings at the end of 6 months?

Given:
C = P3,000
t = 6 mos or 0.5 years
i = 9% to 0.09
m = monthly (12)

Solution 1 Cash Flow

0 1 2 3 4 5 6

PV = 2,977.667 + 2,955.501 + 2,933.50 + 2,911.663 + 2,889.988 + 2,868.474

= P17,536.79

Note: This method will only work within a problem with a minimal term of
annuity.

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 Solution 2 Using the formula
-mt
i
1- (1+ m)
PV = C
i
[ m ]
-12(0.5)
0.09
1- (1+ ) 1-(1+ 0.0075)-6
12
PV = 3000 PV = 3000 [ ]
0.09 0.0075
[ 12 ]
0.04384198
PV = 3000 [ ] PV = 3000 [5.84559733]
0.0075

PV = ₱ 17 536.79

FUTURE VALUE OF GENERAL ANNUITY

General annuity are annuities where the compounding period is not

equal to the payment period. To compute the future value, we will follow these
steps.
1. Calculate first the equivalent rate.
2. Solve using the formula of getting the future value
(1 + i ) n - 1
FV = C [ ]
i
Example:
Find the future value of a P3,500 annuity payable at the end of every 6
months for 3 years if money is worth 12% compounded monthly.
Solution
Step 1: Calculate the equivalent rate (i)
12% compounded monthly - - - - semi-annually
12%
= 0.01
12
(1 + i) n= ( 1 + i) n
1 1
((1 + 0.01)12 )2 = (( 1+ i )2 )2
( 1 + 0.01)6 =(1+ i )
1.061520150601 = 1 + i
1.061520150601 – 1 = i
0.061520150601 = i

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 Step 2: Use the formula
(1 + i ) n - 1
FV = C [ ]
i
(1 + 0.061520150601)2(3) - 1
FV = 3500 [ ]
0.061520150601
(1 + 0.061520150601)6 - 1
FV = 3500 [ ]
0.061520150601
FV = ₱ 24 506.76

PRESENT VALUE OF GENERAL ANNUITY

To compute the present value, we will follow these steps.

1. Calculate first j; k
i where :
j= (1+ ) - 1
m i = interest rate
m = no. of compounding
m
k= n

2. Solve using the formula of getting the present value,

1 - (1 + j)-nt where:
PV = C ( ) n = number of times it should be paid in a year
j
t = number of years

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Example:
If Kierus’ profit from his MT job is worth 8% compounded quarterly, what
is the present value of an annuity of P300,000 payable at the end of every six
months for 3 years?
Given:
C = P300,000
i = 8% to 0.08
m = no. of compounding (4,quarterly)
n = 2(every 6 mos)
k = m/n = 4/2 = 2
t = 3 years

Solution
Step 1: Calculate j;
k
i
j= (1+ ) - 1
m
2
0.08
j= (1+ ) -1
4
j = 0.0404

Step 2:
1 - (1 + j)-nt
PV = C ( )
j

1 - (1 + 0.0404)-2(3)
PV = 300 000 ( )
0.0404
0.211506824
PV = 300 000 ( )
0.0404

PV = 300 000 (5.2353174436)

PV = ₱ 1 570 575

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III. WHAT HAVE I LEARNED

EVALUATION/POST TEST:
Problem-Solving

1. Determine the future value of annual deposits of P8,000 for fifteen

years into an account earning 11% compounded quarterly.

2. Find the present value of monthly payments of P11,000 are required

for twenty years at 8.9% compounded semi-annually.

3. Kalmin’s annuity pays P2,700 at the end of each year for 4 years. The
annuity earns 6.5% compounded annually. Determine the present
value of annuity. Construct a cash flow stream.

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 REFERENCES

Calamiong, L., et al. 2018. General Mathematics for Senior High School:
Annuity. 148-151. Sta. Ana, Manila: VICARISH PUBLICATIONS
AND TRADING, INC.

Banigon Jr., R., et al. 2016. General Mathematics for Senior High School:
Annuity. 115-120. Cubao, Quezon: EDUCATIONAL RESOURCES
CORPORATION

11
 SYNOPSIS AND ABOUT THE AUTHOR
This Self Learning Kit (SLK)
focuses on how to calculate the
future value and present value of
both simple and general
annuities.

Exercises, activities and

examples are designed to
enhance the critical and
analytical thinking skills of the
learners.

Let’s enjoy solving problems

in General Mathematics as it
stimulates our initiative and
ANSWERS KEY

creativity.
AUTHOR

Duke Princeton D. Mariño finish his course at Negros

Oriental State University with a degree of Bachelor
of Science in Mathematics last 2015. He has
Completed Academic Requirements (CAR) in
Master of Science in Mathematics. A Senior High
School Teacher at Pantao National High School
and a District Planning Coordinator -SHS of
Mabinay District II.

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 LESSON DEFERRED ANNUITY
2

OBJECTIVES:
K. Define deferred annuity.
S. Calculates the present value and period of
deferral of a deferred annuity.
A. Appreciate the importance in calculating the
present value of a deferred annuity.

LEARNING COMPETENCY:

Calculates the present value and period of deferral of

a deferred annuity(M11GM-IId-3).

I. WHAT HAPPENED

QUICK RECALL
Present value Future value
The sum that must be invested now to The total amount that will be
guarantee a desired payment in the future achieved over time

PRE-TEST:
Problem-Solving

1. On his 40th birthday, Mr. Ramos decided to buy a pension loan for himself.
This plan will allow him to claim P10,000 quarterly for 5 years starting 3 months
after his birthday. What one-time payment should he make on his 40th
birthday to pay off this pension plan, if the interest rate is 8% compounded
quarterly?

2. Find the period of deferral in the deferred annuity if the quarterly payments
is 300 for 9 years and will start 1 year from now.

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II. WHAT YOU NEED TO KNOW
Deferred annuity is an annuity where in the payment is not made at the
start nor at the end of the first interval. It is an annuity which payments are given
later. Generally, the term “defer” means “to delay”. For example, an annuity
of semi-annually payments which has been deferred for 2 years will have the
first payment at the end of two and half years.

Period of deferral is the time between the purchase of an annuity and

the start of the payments for the deferred annuity.

DISCUSSION

Time Diagram for a Deferred Annuity

C* C*… C* C C… C
0 1 2… k k+1 k+2 k+n

In this time diagram the period of deferral is k because the regular

payments of C start at time k + 1.
The notation C* represent k “artificial payments”, each equal to C, but
are not actually paid during the period of deferral.

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PRESENT VALUE OF A DEFERRED ANNUITY

To determine the present value of a deferred annuity, find the present value
of all k+ n payments (including artificial payments), then subtract the present
value of all artificial payments.

Present Value of a Deferred Annuity

The present value of a deferred annuity is given by

-(k + n) -k
1- (1 + j) 1-(1 + j )
PV = C -C
j j
Where
C is the regular payment;
j is the interest rate per period,
n is the number of payments
k is the number of conversion periods in the deferral

Example:
A credit card company offers a deferred payment option for the
purchase of any appliance. Alice plans to buy a smart television set with
monthly payments of P4,000 for 2 years. The payments will start at the end of 3
months. How much is the cash price of the TV set if the interest rate is 10%
compounded monthly?
Given:
C = 4,000 m= 12 i(12)=10
Solution:
The annuity is deferred for 2 months and it will go on for 2 years. The first
payment is due at the end of 3 months, or at the end of the 3 rd conversion
period. Thus, there are 2 artificial payments.
Number of artificial payments: k = 2
Number of actual payments: n = mt= (12)(2)=24
(12)
i 0.10
Interest rate per period: j= = =0.00833
m 12

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 If you assume that there are payments in the period of deferral, there
would be a total of k+n=2+24=26 payments.

Time Diagram:
4000 4000 … 4000

0 1 2 3 4 … 26

Thus, the present value of the deferred annuity can be solved as

-(k+n) -k
1-( 1 + j ) 1-(1 + j)
PV = C -C
j j
-26 -2
1-(1+0.00833) 1-(1+0.00833)
PV=4000 - 4000
0.00833 0.00833
PV = 85,260.53
Therefore, the present value of these monthly pensions is P85,260.53

PERIOD OF DEFERRAL

Period of deferral is the time between the purchase of an annuity and

the start of the payments for the deferred annuity.
Example 1:

Find the period of deferral if the regular payment is 6,000 semi-annual

for 13 years and will start paying 4 years from now.

Solution: The first payment is at time 8. The period of deferral is from 0 to 7,

which is equivalent to 7 periods or 7 semi-annual intervals.

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III. WHAT HAVE I LEARNED
EVALUATION/POST TEST:
Problem-Solving

1. Harley availed of a loan from a bank that gave him an option to pay
P20,000 monthly for 2 years. The first payment is due after 4 months.
How much is the present value of the loan if the interest rate is 10%
compounded monthly?

2. Find the period of deferral in the deferred annuity if the regular

payment is P50,000 monthly for 3 years and will start paying 8 months
from now.

3. Annual payments of P2,500 for 24 years that will start 12 years from
now. Find the period of deferral.

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 REFERENCES

Calamiong, L., et al. 2018. General Mathematics for Senior High School:
Annuity. 148-151. Sta. Ana, Manila: VICARISH PUBLICATIONS
AND TRADING, INC.

Banigon Jr., R., et al. 2016. General Mathematics for Senior High School:
Annuity. 115-120. Cubao, Quezon: EDUCATIONAL RESOURCES
CORPORATION

18
 SYNOPSIS AND ABOUT THE AUTHOR
This Self Learning Kit (SLK)
focuses on how to solve present
value of a deferred annuity.

Exercises, activities and

examples are designed to
enhance the critical and
analytical thinking skills of the
learners.

Let’s enjoy solving problems

in General Mathematics as it
stimulates our initiative and ANSWERS KEY
creativity.

AUTHOR

Duke Princeton D. Mariño finish his course at Negros

Oriental State University with a degree of Bachelor
of Science in Mathematics last 2015. He has
Completed Academic Requirements (CAR) in
Master of Science in Mathematics. A Senior High
School Teacher at Pantao National High School
and a District Planning Coordinator -SHS of Mabinay
District II.

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 DEPARTMENT OF EDUCATION
SCHOOLS DIVISION OF NEGROS ORIENTAL

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Schools Division Superintendent

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OIC - Assistant Schools Division Superintendent
Acting CID Chief

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OIC - Assistant Schools Division Superintendent

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Education Program Supervisor – (LRMS)

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Education Program Supervisor – (SCIENCE & MATH)

MARICEL S. RASID
Librarian II (LRMDS)

ELMAR L. CABRERA
PDO II (LRMDS)

DUKE PRINCETON D. MARIÑO

Writer

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Lay-out Artist
_________________________________

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DISCLAIMER

The information, activities and assessments used in this material are designed to provide accessible
learning modality to the teachers and learners of the Division of Negros Oriental. The contents of this module are
carefully researched, chosen, and evaluated to comply with the set learning competencies. The writers and
evaluator were clearly instructed to give credits to information and illustrations used to substantiate this material.
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