Simple and General Annuities

Simple Annuity

a type of annuity in which the payment period is the same as the interval period (conversion period).

Payment Period

refers to the time between successive periods of annuity.

Term

refers to time from the start of the first payment up to the last payment.

Periodic Payment (R)

is the size of each annuity payment.

General Annuity

a type of annuity in which the payment period is not the same as the interval period (conversion period).

Future Value of an Annuity

is the total accumulation of the payments and interest earned.

Present Value of an Annuity

is the principal that must be invested today to provide the regular payment of an annuity.

Cash Value or Cash Price

is equal to the down payment (if there is any) plus the present value of the installment payments.

Time Value of Money

the concept that any given sum is worth more now than it will be in the future because it can be invested in the present.

Regular Periodic Payment

the equal amount of money paid at regular intervals in an annuity.

Simple Annuity Identification

used when the interest conversion period is equal or the same as the payment interval.

General Annuity Identification

used when the interest conversion period is different from the payment interval.

Interest Conversion Period

the period when interest is compounded.

Equivalent Interest Rate

the interest rate converted according to the payment interval.

m₁

number of payment intervals per year.

m₂

number of conversion periods per year.

t

term or number of years.

n

total number of payments; calculated as n = (m₁)(t).

R

regular payment or periodic payment.

r(m₂)

interest rate per conversion period.

F

future value of an annuity.

P

present value or principal amount.

DP

down payment.

FGAD

future value of general annuity due.

PGAD

present value of general annuity due.