The different type of annuities – ordinary annuity, annuity due etc
There are 4 main types of annuities:
- Ordinary annuities
An ordinary annuity is a series of constant cash flows that occur at the end of each period for some fixed number of periods commencing at the end of the first period ie t=1
Examples include consumer loans and home mortgages.
- Annuities due
An annuity due is a series of constant cash flows that occur at the start of each period for some fixed number of periods.
Examples include paying rent in advance or uni fees in advance
- Deferred annuities
A deferred annuity is a series of constant cash flows that occur at the end of each period for some fixed number of periods commencing some future period after period one.
Example include retirement payout that is deferred to be paid out in later years
- Perpetuities
A perpetuity is a series of constant cash flows that occur at the end of each period indefinitely.
Example include pension funds that pay out forever