What is the Future Value of an Ordinary Annuity Table?An annuity is a series of payments that occur at the same intervals and in the same amounts. An example of an annuity is a series of payments from the buyer of an asset to the seller, where the buyer promises to make a series of regular payments. Thus, Harvest Designs buys a warehouse from Higgins Realty for $1,000,000, and promises to pay for the warehouse with five payments of $200,000, to be paid at intervals of one payment per year; this is an annuity. If the payments are due at the end of a period, the annuity is called an ordinary annuity. If the payments are due at the beginning of a period, the annuity is called an annuity due. Show
You might want to calculate the future value of an annuity, to see how much a series of investments will be worth as of a future date. This is done by using an interest rate to add interest income to the amount of the annuity. The interest rate can be based on the current amount being obtained through other investments, the corporate cost of capital, or some other measure. An annuity table represents a method for determining the future value of an annuity. The annuity table contains a factor specific to the future value of a series of payments, when a certain interest earnings rate is assumed. When you multiply this factor by one of the payments, you arrive at the future value of the stream of payments. For example, if you expect to make 5 payments of $10,000 each into an investment fund and use an interest rate of 6%, then the factor would be 5.6371 (as noted in the table below at the intersection of the "6%" column and the "n" row of "5" periods. You would then multiply the 5.6371 factor by $10,000 to arrive at a future value of the annuity of $56,371. Rate Table For the Future Value of an Ordinary Annuity of 1The preceding annuity table is useful as a quick reference, but only provides values for discrete time periods and interest rates that may not exactly correspond to a real-world scenario. Accordingly, use the following annuity formula in an electronic spreadsheet to more precisely calculate the correct amount of the future value of an ordinary annuity: Where: P = The future value of the annuity stream to be paid in the future What Is an Immediate Payment Annuity?An immediate payment annuity is a contract between an individual and an insurance company that pays the owner, or annuitant, a guaranteed income starting almost immediately. It differs from a deferred annuity, which begins payments at a future date chosen by the annuity owner. An immediate payment annuity is also known as a single-premium immediate annuity (SPIA), an income annuity, or simply an immediate annuity. Key Takeaways
How an Immediate Payment Annuity WorksIndividuals typically buy immediate payment annuities by paying an insurance company a lump sum of money. The insurance company, in turn, promises to pay the annuitant a regular income, according to the terms of the contract. The amount of those payments is calculated by the insurer, based on such factors as the annuitant's age, prevailing interest rates, and how long the payments are to continue. Payments typically begin within a month of purchase. Annuitants can also decide how often they want to be paid, known as a "mode." A monthly mode is most common, but quarterly or annual payments are also an option. People often buy immediate payment annuities to supplement their other retirement income, such as Social Security, for the rest of their lives. It is also possible to buy an immediate payment annuity that will provide income for a limited period of time, such as 5 or 10 years. The payments on immediate payment annuities are generally fixed for the period of the contract. However, some insurers also offer immediate variable annuities that fluctuate based on the performance of an underlying portfolio of securities, much like deferred variable annuities. Still another variation is the inflation-protected annuity, or inflation-indexed annuity, which promises to increase payments in line with future inflation. Immediate payment annuities represent a bit of a gamble: Annuitants who die too soon may not get their money's worth, while those who live a long time can come out ahead. Special ConsiderationsOne potential drawback of an immediate payment annuity is that payments typically end upon the death of the annuitant, and the insurance company keeps the remaining balance. So an annuitant who dies earlier than expected may not get their money's worth out of the deal. On the other hand, an annuitant who lives longer may come out ahead. There are some ways to get around this problem. One is by adding a second person to the annuity contract (referred to as a joint and survivor annuity). It is also possible to buy an annuity that guarantees payments to the annuitant's beneficiaries for a certain period, or that will refund the annuitant's principal if the annuitant dies early (known as a cash refund annuity). Such provisions cost extra, however. Once purchased, an immediate payment annuity cannot be canceled for a refund. This may pose a problem should the annuitant need the money in a financial emergency. For this reason, it's smart to have an emergency fund set aside for unforeseen needs before deciding how much money will be placed in the annuity. When are the first and last payments made on an annuity?The first payment occurs on the same date as the beginning of the annuity. The last payment occurs one payment interval before the end of the annuity Payments are made at the beginning of the payment intervals, and the payment and compounding frequencies are equal. The first payment occurs on the same date as the beginning of the annuity.
What is annuity due?Annuity due is an annuity whose payment is due immediately at the beginning of each period. Annuity due can be contrasted with an ordinary annuity where payments are made at the end of each period.
What is a a/a annuity and how does it work?A/An______ is an annuity in which the period of payment is made at the beginning of each payment interval and the compounding period is equal or the same as the payment interval. Payments are made at the beginning of the payment intervals, and the payment and compounding frequencies are equal.
What happens when an annuity expires?Once an annuity expires, the contract terminates and no future payments are made. The contractual obligation is fulfilled, with no further duties owed from either party. An annuity due is an annuity with a payment due or made at the beginning of the payment interval. In contrast, an ordinary annuity generates payments at the end of the period.
When the periodic payments are made at the end of each payment interval the annuity is Calledanswer?If the periodic payments are made at the end of each period, the annuity is called an immediate annuity or ordinary annuity. Was this answer helpful?
Which refers to the annuity that occurs when periodic payments are made at the beginning of each payment interval?Key Takeaways. Annuity due is an annuity whose payment is due immediately at the beginning of each period. Annuity due can be contrasted with an ordinary annuity where payments are made at the end of each period.
What is a periodic payment deferred annuity?A deferred payment annuity is an insurance product that provides the buyer with future payments rather than an immediate stream of income. This kind of annuity allows the investment principal to grow through contributions and interest before the owner receives payments.
What is a delayed annuity?A delayed annuity, more commonly known as a deferred annuity, is a type of life annuity that guarantees a reliable stream of cash payments to an annuitant until death. Following the death of the annuitant, the cash benefit may be transferred to a beneficiary or estate depending on the options chosen by the buyer.
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Which annuity is made when the periodic payment is not made at the beginning or at the end of each payment interval but at some later date?
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