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Annuities

An annuity is a series of fixed payments made at regular intervals. Annuities can be used to pay interest on investments or pay off loans through scheduled payments. A life annuity specifically pays out income at regular intervals until the recipient's death, with the number of payments depending on how long the recipient lives. An annuity certain has a fixed number of payments, while a contingent annuity's payments depend on some uncertain event, such as the recipient's lifespan for a life annuity.

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30 views1 page

Annuities

An annuity is a series of fixed payments made at regular intervals. Annuities can be used to pay interest on investments or pay off loans through scheduled payments. A life annuity specifically pays out income at regular intervals until the recipient's death, with the number of payments depending on how long the recipient lives. An annuity certain has a fixed number of payments, while a contingent annuity's payments depend on some uncertain event, such as the recipient's lifespan for a life annuity.

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Annuities

An annuity is a sequence of payments with fixed frequency. The term \annuity"


originally referred to annual payments (hence the name), but it is now also used
for payments with any frequency. Annuities appear in many situations; for
instance, interest payments on an investment can be considered as an annuity.
An important application is the schedule of payments to pay off a loan.

The word \annuity" refers in everyday language usually to a life annuity. A


life annuity pays out an income at regular intervals until you die. Thus, the
number of payments that a life annuity makes is not known. An annuity with a
fixed number of payments is called an annuity certain, while an annuity whose
number of payments depend on some other event (such as a life annuity) is a
contingent annuity.

Valuing contingent annuities requires the use of probabilities and this will not be covered in this module. These
notes only looks at annuities certain, which will be called annuity for short

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