Annuity

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Annuity

An Annuity (/əˈnjuː.ɪ.ti/; from Latin annuus, meaning 'yearly') is a series of payments made at equal intervals. Examples of annuities are regular deposits to a savings account, monthly home mortgage payments, monthly insurance payments and pension payments. Annuities can be classified by the frequency of payment dates. The payments (deposits) may be made weekly, monthly, quarterly, yearly, or at any other regular interval of time.

Etymology

The term "annuity" comes from the Latin word annuus, which means "yearly". It was first used in the English language in the 14th century to refer to annual rents or leases. Over time, the term evolved to include any series of fixed payments made over a specified period.

Types of Annuities

There are several types of annuities, including:

  • Immediate Annuity: An immediate annuity is an annuity in which the first payment is due immediately upon the annuitant's payment of the purchase price.
  • Deferred Annuity: A deferred annuity is an annuity in which the income payments or withdrawals begin at some future date.
  • Fixed Annuity: A fixed annuity is an annuity where the insurance company guarantees a certain rate of return on the annuitant's investment.
  • Variable Annuity: A variable annuity is an annuity where the payout is not fixed and can vary based on the performance of the investment options chosen by the annuitant.

Related Terms

  • Present Value of Annuity: The present value of an annuity is the current value of a set of cash flows in the future, given a specified rate of return or discount rate.
  • Future Value of Annuity: The future value of an annuity is the value of a group of recurring payments at a specified date in the future, given a specified rate of return or interest rate.
  • Annuity Due: An annuity due is an annuity whose payments are made at the beginning of each period.
  • Ordinary Annuity: An ordinary annuity is an annuity whose payments are made at the end of each period.

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