5.1 Definitions

An annuity is a sequence of equal payments made at equal periods of time. Insurance premiums, mortgage payments, interest payments on bonds, payments of rent, payments on hire purchases,  and dividends are a few examples of annuities.

When the payments are made at the end of the time period, the annuity is called an ordinary annuity. Examples include loan repayments and interest payments on bonds. When the payments are paid at the beginning of each payment period, the annuity is called an annuity due. Examples include insurance premiums.

The future value (or accumulated value) of an annuity is the total value of the set of payments at the end of the term. Similarly, the present value (or discounted value) of an annuity is the equivalent value of the set of payments due at the beginning of the term.