Annuity is a popular concept in Corporate Finance which is usually covered under Time Value of Money(TVM). If you are familiar with compound interest and how it applies both theoretically and in real life financial investments, you will realize that it is also applicable in annuities. Before I uncover the difference between these two types of annuities , it is necessary to start from the basic definitions.
What is an Annuity ?
It is a recurring fixed payment to an individual, meaning, it is paid consecutively for a certain period of time.
What is Ordinary Annuity?
In simple terms, it is a recurring fixed payment that occurs at the end of every period. For example, at the end of every year, end of every month, end of every quarter etc.
What is an Annuity Due?
Simplest way to put it fo your quick memory is that it is the opposite of an ordinary annuity.
What do I mean by that? It is a recurring fixed payment that occurs at the beginning of every period. For example, at the beginning of every year, beginning of every month, beginning of every quarter etc.
This video will help you put all these into practical perspective.
For 1:1 online tutoring, visit our hourly rates page here https://www.bettytutors.com/hourly-rate
Comments