Annuities Flashcards
is an amount to be paid, usually in equal amounts at equal time intervals (Regacho, Benjamin, & Oryan, 2017, p. 165)
Annuity
are usually applied in payments for large purchases
Annuities
It may also be considered as an investment with the promise that it will be paid over a certain number of periods.
Annuities
Common Applications:
- Houses * Condominiums
- Cars * Insurance plans
- The time between successive payments of an annuity
Payment interval
- The number of periods from the first payment interval to the last payment interval
Term of an annuity
– Classification of annuity wherein payment intervals and interest conversion periods are the same
Simple annuity
– Classification of annuity wherein payment intervals and interest conversion periods are unequal
General annuity
Simple and general annuities are further classified into three (3) classifications.
Ordinary annuity (annuity-immediate) – Periodic payments are made at the end of the payment intervals.
Annuity due – Periodic payments are made at the beginning of payment intervals
Deferred annuity – Periodic payment is due at some later date.
– The time money is put into the annuity until it is released
Accumulation phase
– The time after the release of annuity
Distribution phase
The present value of an annuity due (𝑃𝑃due) is the sum of the present values of the periodic payments.
The present value of an annuity due (𝑃𝑃due) is the sum of the present values of the periodic payments.
An annuity whose term does not begin until the expiration of specified time is called a
deferred annuity.
The present value of a deferred annuity (𝑃𝑃def) whose term is 𝑛𝑛 interest periods and is deferred 𝑑𝑑 periods, is equal to the present value of all payments for 𝑛𝑛 + 𝑑𝑑 periods minus the present value of the 𝑑𝑑 periods
