MAT.116 4.2

Annuities are financial instruments characterized by a sequence of regular payments made over specified periods. These payments can be structured in various ways, such as being made at the beginning or end of each period, leading to different types like annuity due or ordinary annuity, respectively.

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Regular deposits to a savings account

Monthly home mortgage payments

Monthly insurance payments

Retirement plans like IRAs, Keogh plans, and SEP plans

After-tax-deferred annuities

A formula which calculates the accumulated, or future, amount of an ordinary, certain, simple annuity with equal payments.

A formula which calculates the current, or present, value of an ordinary, certain, simple annuity with equal payments.

Payments in an annuity need not be equal, but we will choose to assume they are.

If the payment periods and interest conversion periods do not coincide, the annuity is called a complex annuity.

If the payment periods and interest conversion periods coincide, the annuity is called a simple annuity.

An annuity due is an annuity where the payments are made at the beginning of each payment period.

An ordinary annuity is an annuity where the payments are made at the end of each payment period.

The time period in which these payments are made is called the term of the annuity.

An annuity with a term that is not fixed in advance.

An annuity with a definite beginning date but no ending date.

An annuity where the term is a fixed time interval.

An annuity is a sequence of payments made at regular time intervals.