Ordinary Annuity


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.

BREAKING DOWN '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).

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  1. What is the difference between a bond's yield rate and its coupon rate?

    An annuity is an investment in which a person receives a fixed sum of money annually. Coupon payments received by a bondholder ... Read Full Answer >>
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    Variable deferred annuities and variable immediate annuities are not considered liquid. Variable deferred annuities carry ... Read Full Answer >>
  3. Do variable annuities have RMDs?

    Variable annuities are not subject to required minimum distributions (RMDs) unless they are held in qualified plans, such ... Read Full Answer >>
  4. What are the maximum Social Security disability benefits?

    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>
  5. Can variable annuities be rolled into an IRA?

    Variable annuities are often found in government or nonprofit employer retirement plans such as 403(b) or 457(b) plans. With ... Read Full Answer >>
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    When planning for retirement, it is important to have a good idea of how much income you can rely on each year. There are ... Read Full Answer >>

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