Ordinary Annuity

AAA

DEFINITION of 'Ordinary Annuity'

A series of equal payments made at the end of each period over a fixed amount of time. While the payments in an annuity can be made as frequently as every week, in practice, ordinary annuity payments are made monthly, quarterly, semi-annually or annually. The opposite of an ordinary annuity is an annuity due, where payments are made at the beginning of each period.

INVESTOPEDIA EXPLAINS 'Ordinary Annuity'

Examples of ordinary annuities are interest payments from bond issuers, which are generally paid semi-annually, and quarterly dividends from a company that has maintained stable payouts for years. The present value of an ordinary annuity is largely dependent on the prevailing rate of interest. Because of the time value of money, rising interest rates will reduce the present value of an ordinary annuity, while declining interest rates will increase its present value. This is because the value of the annuity is based on what return you can get elsewhere. If you can get a higher interest rate somewhere else, the value of the annuity in question goes down. Most testing questions will be based on an ordinary, so you need to be careful that your calculator is not in annuity due mode, usually denoted with "BEG" (representing beginning).

RELATED TERMS
  1. No-Load Annuity

    A type of variable annuity that charges much lower fees and expenses ...
  2. Annuity

    A financial product sold by financial institutions that is designed ...
  3. Annuity Due

    An annuity whose payment is to be made immediately, rather than ...
  4. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  5. Variable Annuity

    An insurance contract in which, at the end of the accumulation ...
  6. Immediate Payment Annuity

    An annuity contract that is purchased with a single lump-sum ...
Related Articles
  1. Investing Basics

    Calculating The Present And Future Value Of Annuities

    At some point in your life, you may have had to make a series of fixed payments over a period of time - such as rent or car payments - or have received a series of payments over a period of time, ...
  2. Bonds & Fixed Income

    Passing The Buck: The Hidden Costs Of Annuities

    These may look like good retirement vehicles, but beware of the fees buried in the fine print.
  3. Options & Futures

    Getting the Whole Story on Variable Annuities

    Variable annuities are another way to save money tax-deferred - but don't jump in blindly!
  4. Retirement

    Variable Annuities With Living Benefits: Worth The Fees?

    Added features can make a variable annuity suitable for certain investors. Find out if it could work for you.
  5. Retirement

    Annuities: How To Find The Right One For You

    Fixed, variable and indexed annuities offer different features. Find out which one fits your needs.
  6. Options & Futures

    Break Out Of Annuity Prison

    Annuities offer security but also lock up your cash. The secondary market could be your key.
  7. Insurance

    Who are the best-rated life insurance companies in the US?

    Learn about what makes an insurance company the best. Read about the best life insurance companies in the U.S. in 2014, following ratings by Weis.
  8. The Treasury and the IRS have issued new guidance on pairing annuities with target date funds.
    Investing Basics

    Guidance On Pairing Annuities, Target Date Funds

    The Treasury and the IRS have issued new guidance on pairing annuities with target date funds. Here's a look.
  9. Options & Futures

    Writing Covered Calls On ETFs

    The strategy of writing covered calls on ETFs can limit your losses and hedge risk, but they cap your upside potential.
  10. Bonds & Fixed Income

    What determines the price of a bond in the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market, and why bond prices and yields move in opposite directions.

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center