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 ...

  2. Bonds & Fixed Income

    Passing The Buck: The Hidden Costs Of ...

  3. Options & Futures

    Getting the Whole Story on Variable ...

  4. Retirement

    Variable Annuities With Living Benefits: ...

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center