Definition

Noun: An ordinary annuity is a financial product that provides a series of equal payments made at the end of consecutive, equally spaced periods (e.g., monthly, quarterly, annually). It is a common structure for pensions, loan repayments, and certain investment payouts.

Usage

The term is used to describe a specific, standard payment schedule in finance and investment contexts. It contrasts with an "annuity due," where payments are made at the beginning of each period. - The pension plan was structured as an ordinary annuity, with benefits paid at the end of each month. - To calculate the present value of the loan, we must treat the repayments as an ordinary annuity.

Advanced Usage

• In Financial Modeling: The concept is fundamental for time value of money calculations, such as determining the present value (PV) or future value (FV) of a stream of cash flows.
  • The net present value of the project was calculated by discounting the expected cash inflows as an ordinary annuity.
• Contractual Specification: Financial contracts will explicitly state if an annuity is ordinary.
  • The bond's indenture specifies that coupon payments are an ordinary annuity, payable semi-annually in arrears.

Variants and Related Words

• Annuity Due (n): A series of equal payments made at the of each period. This is the direct contrast to an ordinary annuity.
• Perpetuity (n): A special type of annuity where the equal payments continue indefinitely.

Synonyms

• Annuity in arrears: A less common synonym emphasizing that payments are made at the end (in arrears) of the payment period.
• Immediate annuity (in specific contexts): Often refers to an annuity that begins payments one period after a lump sum is paid, aligning with the ordinary annuity structure.

Related Phrases

• Present value of an ordinary annuity (PVOA): A standard financial formula used to calculate the current worth of a stream of future ordinary annuity payments.
  • We used the PVOA formula to determine how much to invest today.
• Future value of an ordinary annuity (FVOA): A formula used to calculate the accumulated value of a series of payments at a future date.
  • Her regular savings, treated as an ordinary annuity, had a significant future value at retirement.

Noun

1. an annuity paid in a series of more or less equal payments at the end of equally spaced periods