Simple and General Annuities: Definition of Terms

Annuity

a sequence of payments made at equal (fixed intervals or periods of time.

Examples of Annuities

Rental payment, Monthly pensions, Monthly payment for car loan, Educational plan

Periodic payment (R).

Each payment in an annuity

Payment Interval

The time between the successive payments dates of an annuity

Term of the annuity (t)

The time between the first payment interval and last payment interval

Future value of an annuity (F)

The sum of the future values of all the payments to be made during the entire term of the annuity

Present value of an annuity (P)

The sum of the present values of all payments to be made during the entire term of the annuity.

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.

Ordinary Annuity (or Annuity Immediate)

A type of annuity in which the payments are made at the end of each payment interval

Contingent Annuity

An annuity in which the payments extend over an indefinite (or indeterminate) lengthof time

Annuity Certain

An annuity in which payments begin and end at definite times