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. Calculating The Present And Future Value ...
    Investing Basics

    Calculating The Present And Future Value ...

  2. Passing The Buck: The Hidden Costs Of ...
    Bonds & Fixed Income

    Passing The Buck: The Hidden Costs Of ...

  3. Getting the Whole Story on Variable ...
    Options & Futures

    Getting the Whole Story on Variable ...

  4. Variable Annuities With Living Benefits: ...
    Retirement

    Variable Annuities With Living Benefits: ...

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center