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5-2 - Chapter 5.2 Annuities In the previous section we...

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Chapter 5.2: Annuities In the previous section, we considered a deposit of money, left to earn interest over time. Today, we will look at annuities . An annuity is a sequence of deposits or payments made at regular intervals. For example, the mortgage on a house is an annuity, as is a savings plan to which we make regular deposits. We can classify annuities according to the term . Annuities may have a predetermined term length ( annuity certain ), have no fixed end-date, ( perpetuity ), or may have no predetermined start-date ( contingent an- nuity ). Payments may be made at the end of the payment period ( ordinary annuity ), or at the beginning of the payment period ( annuity due ). The conversion periods may coincide with the payment periods ( simple annuity ), or may not ( complex annuity) . We will focus on annuities in which: the term-length is predetermined, the payments are made at the end of the payment period, conversion periods and payment periods coincide, and payments are equal in size. As with compound interest, we may be interested in the future value, or the present value of an annuity.
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