Annuities are a series of periodic payments either at the beginning or the end of the year. A common example of an annuity is rent, or a monthly lease or bond payments of the same equal amount. An annuity payment that occurs at the beginning of the year is referred to as an annuity due, and an annuity payment that occurs at the end of the year is referred to as an ordinary annuity. Usually an annuity problem by default is considered to be an ordinary annuity, unless otherwise stated.
Example:
Adequate Disclosure commits to a new lease regarding its corporate headquarters in New York City. Adequate Disclosure must pay an annual payment of $500,000 rent at the end of the year. What type of an annuity is this lease considered to be?
- This lease is considered an Ordinary Annuity.