Financial Terms / ordinary annuity

# Understanding Ordinary Annuities

An ordinary annuity is a type of annuity that involves a series of equal cash flows over a period of time.

## What is an ordinary annuity?

`An ordinary annuity is a series of payments made at the end of consecutive periods over a fixed length of time.`

## How are payments made in an ordinary annuity?

`Payments in an ordinary annuity are made at the end of each consecutive period.`

## What is the formula for calculating the future value of an ordinary annuity?

`The formula for calculating the future value of an ordinary annuity is `FV = PMT x [((1 + i)n - 1) / i]`, where PMT is the periodic payment, i is the interest rate per period, and n is the number of periods.`

## Key Points

An annuity guarantees payments over time
An annuity is a contract that provides a periodic payment of a fixed amount, ensuring that the payments are made on time.
An annuity starts on a predetermined date
An annuity is a contract between a person and an insurance company that begins on a specified date.
An annuity lasts for a specific time
The annuity contract will last for a specified amount of time, such as 10, 20, or 30 years.
There are two main types of annuities: fixed and variable
Fixed annuities give the same payment every period, while variable annuities have payments that can vary from period to period.
The ordinary annuity is the payment due under an annuity contract
The ordinary annuity is the regular payment due for each period of the annuity contract.
The ordinary annuity makes payments at the end of each period
The ordinary annuity makes payments at the end of each period, as stated in the annuity contract.
An annuity due makes payments at the beginning of each period
An annuity due is similar to an ordinary annuity, but payments are made at the beginning of each period, instead of at the end.