General Ordinary Annuity

Summary

This lesson focuses on the future and present value calculations of general ordinary annuities, distinguishing between simple and general annuities based on payment and interest intervals. The instructor demonstrates how to find the future value using examples like Chris's anniversary savings and Mr. Cruz's quarterly deposits. Additionally, the lesson covers the present value with practical scenarios, such as Mom Jenny's laptop purchase and Krisha's loan payments. The key formulas for calculating future and present values are highlighted, ensuring learners understand the necessary components, including the equivalent interest rate per payment interval.

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Q & A

What is the primary focus of the lesson on general ordinary annuity?

The primary focus is to solve for the future value and present value of a general ordinary annuity.

What is the difference between simple annuity and general annuity?

A simple annuity has payment intervals that coincide with the interest conversion periods, whereas a general annuity has payment intervals that do not coincide with the conversion periods.

How do you calculate the equivalent interest rate for a general annuity?

The equivalent interest rate per payment interval (i) can be calculated using the formula: i = (r/m) where r is the nominal interest rate and m is the number of conversions per year.

In the example of Chris and Chris, what is the future value of their deposits after six years?

The future value of their deposits after six years is 164,876.29 pesos.

What information is needed to compute the future value of an annuity?

To compute the future value, you need the amount of the annuity (A), the equivalent interest rate per payment interval (i), the frequency of payments per year (t), and the term of the annuity in years (n).

What is the formula for calculating the present value of a general ordinary annuity?

The formula for calculating the present value (P) is: P = A × [(1 - (1 + i)^(-tn)) / i], where A is the annuity, i is the equivalent interest rate, t is the frequency of payments per year, and n is the number of years.

In the context of the lesson, how is the nominal interest rate converted for calculations?

The nominal interest rate is converted to decimal form before using it in calculations, such as dividing by 100.

What are the implications of the payment intervals not coinciding with the conversion periods?

When payment intervals do not coincide with conversion periods, it necessitates the use of different formulas and adjustments to calculate future and present values accurately.

What factors should be considered when deciding between cash and installment payments?

Consider the total cost of the item, interest rates, the present value of installment payments, and the financial benefits of paying in cash versus the flexibility of installments.

What is the importance of understanding annuities in financial planning?

Understanding annuities is crucial for effective financial planning, as they can significantly impact savings, retirement funding, and overall financial management.