Chapter The time interval between two successive payments is called payment interval or payment period . Note that, the payment period may be annual, half yearly, quarterly, monthly (or) any fixed duration of time. The time interval between the first payment and the last payment of an annuity is called term of an annuity . The sum of all payments made and interest earned on them at the end of the term of annuities is called future value of an annuity.
The present or capital value of an annuity is the sum of the present values of all the payments of the annuity at the beginning of the annuity of purchase the payments due in future. Here we note that unless mentioned specifically, the payment means yearly payment. . .
Types of annuities a)Based on the number of periods: (i) Certain annuity: An annuity payable for a fixed number of years is called certain annuity. Installments of payment for a plot of land, Bank security deposits, purchase of domestic durables are examples of certain annuity. Here the buyer knows the specified dates on which installments are to be made. (ii) Annuity contingent: An annuity payable at regular interval of time till the happening of a specific event or the date - - of which cannot be accurately foretold is called annuity contingent.
For example the endowment funds of trust, where the interest earned is used for welfare activities only. The principal remains the same and activity continues forever. All the above types of annuities are based on the number of their periods. An annuity can also be classified on the basis of mode of payment as under.
b) Based on the mode of payment : i) Ordinary annuity: An annuity in which payments of installments are made at the end of each period is called ordinary annuity (or immediate annuity) For example repayment of housing loan, vehicle loan etc., ii) Annuity due: An annuity in which payments of installments are made in the beginning of each period is called annuity due. In annuity due every payment is