How do they work? (With example). What are ordinary annuities, and how do they work? How is an ordinary annuity defined quizlet? An annuity is an investment that provides periodic payments. The payments can be made on a regular basis, such as monthly or yearly, or they can be made in a lump sum. Are mortgage payments are an example of an ordinary annuity? Yes, mortgage payments are an example of an ordinary annuity. An ordinary annuity is a stream of equal periodic payments, where each payment is made at the end of a period. Mortgage payments are made at the end of each month and are thus an example of an ordinary annuity. What is annuity in simple words? An annuity is a financial product that allows you to make regular, equal payments over a period of time. The payments can be made monthly, quarterly, or yearly, and can last for a set period of time, such as 10, 20, or 30 years.
What is annuity due Example? An annuity due is an annuity in which each payment is made at the beginning of each period. An annuity due thus has an effective interest rate that is higher than the stated rate.
For example, consider an ordinary annuity with a stated annual interest rate of 6% and semiannual payments. The effective interest rate is 6.09%, because the first payment is made one-half year after the start of the annuity. In contrast, consider an annuity due with the same stated rate and payments. The effective interest rate is 6.17%, because the first payment is made immediately.
The higher effective interest rate of the annuity due results in a higher present value for the annuity. Thus, if you are the recipient of payments from an annuity, you would prefer to receive an annuity due. Which of the following is an example of ordinary annuity? An ordinary annuity is an annuity where payments are made at fixed intervals and the first payment is made at the end of the interval. An example of an ordinary annuity would be a monthly payment made on the last day of each month.