Simple and
General Annuities
•Simple Annuity - the payment
interval is also the same as the
interest period.
•General Annuity - refers to an
annuity where the length of the
payment interval is not the same as
the length of the interest
compounding period
• Annuity Payment - If the payment for each period is fixed
and the compound interest rate is fixed over a specified time
the payment.
• Accounts associated with streams of annuity payments are
called annuities.
• Annuity - a sequence of payments made at equal (fixed
intervals or periods of time.
The following are examples of annuities:
Rental payment
Monthly pensions
Monthly payment for car loan
Educational plan
• The payment is made at the end of each period. Such
annuity is called an ordinary annuity.
• Each
payment in an annuity is called the periodic
payment (R).
• The time between the successive payments dates of
an annuity is called the payment interval.
• The sum of the future values of all the payments to be
made during the entire term of the annuity is the
future value or the amount of an annuity(F).
Simple Annuity
Example 1. ₱ 50,000 deposited every year for 5 years
at 8%per year compounded annually.
Solution: Notice that ₱ 50,000 was deposited every
year and it is compounded
annually. Since the
compounding period is similar to the
payment interval, then this is a type of
simple annuity.