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General Annuity - an
annuity where the
payment interval is not
the same as the interest
compounding period
General Ordinary Annuity
- a general annuity in
which the periodic
payment is made at the
end of the payment
interval
Examples of General Annuity:
𝑒𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡 𝑟𝑎𝑡𝑒
Formula to find Future Value 𝐹
birthday?
2. In order to save for her high
school graduation, Kathrina
decided to save P200 at the end
of every other month, starting the
end of the second month. If the
bank pays 0.250% compounded
monthly, how much will be her
money at the end of 5 years?
ANSWERS
1. Given:
𝑅 = P5,000
𝑡 = 7 𝑦𝑒𝑎𝑟𝑠
𝑟 = 1% or 0.01
𝑚 = 12
𝑛 = 4x7 = 28
𝑚𝑗 = 4
Find : 𝐹
2. Given:
𝑅 = P200
𝑡 = 5 years
𝑟 = 0.25% or 0.0025
𝑚 = 12
𝑛 = 6x5= 30
𝑚𝑗 = 6
Find : 𝐹
Formula to find the Present
Value 𝑃
Semi-annual payments of
P8,000 at the end of each
TIME’S UP!
term for 12 years with interest
rate of 12% compounded
quarterly
Find the cash value:
Semi-annual payments of
TIME’S UP!
P8,000 at the end of each term
for 12 years with interest rate
of 12% compounded quarterly
₱99,573.23
Quiz/Assignment:
Bond paper
1. Find the future value of
an ordinary annuity of
P5,000 payable semi-
annually for 10 years if
money is worth 9%
compounded annually.
2. To pay for his debt at 12%
compounded semi-annually,
Ruben committed for 8
quarterly payments
of P24,491.28 each. How
much did he borrow?
3. The buyer of a car pays
P169,000 cash and P12,000
every month for 5 years. If
money is 10% compounded
annually, how much is the
cash price of the car?
ANSWERS
1. Given:
𝑅 = P5,000
𝑟 = 9% or 0.09
𝑚= 1
𝑚𝑗 = 2 1 𝑝𝑡
𝑡 = 10 𝑦𝑒𝑎𝑟𝑠
𝑛 = 2x10 = 20
Find : 𝐹
1 𝑝𝑡
1 𝑝𝑡
1 𝑝𝑡
1 𝑝𝑡
2 𝑝𝑡𝑠
2. Given:
𝑅 = P24,491.28
𝑟 = 12% or 0.12
𝑚= 2
𝑚𝑗 = 4 1 𝑝𝑡
𝑛 =8
Find : 𝑃
1 𝑝𝑡
1 𝑝𝑡
1 𝑝𝑡
1 𝑝𝑡
2 𝑝𝑡𝑠
3. Given:
𝐷𝑃 = P169,000
𝑅 = P12,000
𝑟 = 10% or 0.10 1 𝑝𝑡
𝑚=1
𝑚𝑗 = 12
𝑡 = 5 years
𝑛 = 60
Find : 𝑃/𝐶𝑃
1 𝑝𝑡
1 𝑝𝑡
1 𝑝𝑡
1 𝑝𝑡
2 𝑝𝑡𝑠
₱𝟕𝟑𝟗, 𝟒𝟔𝟒. 𝟐𝟒
2 𝑝𝑡𝑠
23 POINTS
+ 2 POINTS
25 POINTS
We will now apply the
concepts of present and
future values to solve
problems about
cash flows.
A cash flow is a term that
refers to payments
received (cash inflows) or
payments or deposits
made (cash outflows).
The fair market value or
economic value of a cash
flow (payment stream) on a
particular date refers to a
single amount that is
equivalent to the value of the
payment stream at that date.
This particular date is
called the focal date.
EXAMPLE 1. Mr. Ribaya
received two offers on a
lot that he wants to sell.
Mr. Ocampo has offered
₱50,000 and P1 million
lump sum payment
5 years from now.
Mr. Cruz has offered
₱50,000 plus P40,000
every quarter for five
years.
Compare the fair market
values of the two offers if
money can earn 5%
compounded annually.
𝐹𝑀𝑉 =
Mr. Cruz's offer:
Compute for the present
value of a general annuity
with quarterly payments
but with annual
compounding at 5%.
Given:
Mr. Ocampo’s offer Mr. Cruz’s Offer
𝐹𝑀𝑉 =
Hence, Mr. Ocampo's offer has
a higher market value. The
difference between the market
values of the two offers at the
start of the term is
P833,526.17 P755,574.33 =
SOLUTION 2. Choose
the focal date to be the
end of the term.
Given:
Mr. Ocampo’s offer Mr. Cruz’s Offer
𝐹𝑀𝑉 = P1,063,814.08
Mr. Cruz's offer:
P63,814.08
Fair Market Value (𝐹𝑀𝑉)
𝐹𝑀𝑉 =
Hence, Mr. Ocampo's offer has
a higher market value. The
difference between the market
values of the two offers at the
end of the term is
P1,063,814.08 P964,321.42
= P99,492.66
Company A offers P150,000 at the
end of 3 years plus P300,000 at
the end of 5 years. Company B
offers P25,000 at the end of each
quarter for the next 5 years.
Assume that money is worth 8%
compounded semi-annually.
Which offer has a better market
value?
Given:
Company A Company B
P150,000 at the
end of 3 years, R = P25,000
and t = 5 years
P300,000 at the mj = 4
end of 5 years
r = 8%, m = 2
Company A offer
Company B offer
Focal Date Start of the Term
Company A offer
The present value of P150,000 three
years from now is
₱118,547.18
The present value of P300,000 five years
from now is
The present value of P300,000 five
years from now is
Focal Date Start of the Term
Company A offer
+
Fair Market
P321,216.43
Value (FMV)
Focal Date Start of the Term
Company B offer
Compute for the present value of a
general annuity with quarterly
payments but with semiannual
compounding at 8%.
Solve the equivalent rate,
compounded quarterly, of 8%
compounded semi−annually.
The present value of an annuity is
Focal Date Start of the Term
Company A offer
Fair Market Value (FMV) = P321,216.43
Company B offer
Fair Market Value (FMV) = P409,560.09
1pt
1pt
1pt
2pts
2. Given:
DP = P200,000
R = P16,600
r = 5% or 0.05
1pt
m=2
mj = 12
t = 5 years
n = 60
Find: P/CP
1pt
1pt
1pt
1pt
2pts
₱𝟏, 𝟎𝟖𝟎, 𝟕𝟒𝟐. 𝟐𝟒
2 𝑝𝑡𝑠
3. Given:
R = P2,500
r = 9% or 0.09
m=1 1pt
mj = 12
t = 6 months
n=6
Find: P
1pt
1pt
1pt
1pt
2pts
decision 1pt
reason 1pt
Prob. # 1 – 7 points
Prob. # 2 – 9 points
Prob. # 3 – 9 points
TOTAL – 25 POINTS