Question

Define the term annuity and show on a time-line an example of the following:

a) simple ordinary annuity, b) annuity due, and c) perpetuity.

Answer 1

Annuity is a series of payments made at equal intervals .For example loan is repaid by making annual payment of a particular amount for particular number of years or an investment paying an income of particular amount for n number of years.

Now.there are various types of annuities which are as follows :-

(a) Simple ordinary annuity :-In this annuity, payment is made at the end of each period

(b)Annuity due :-In this annuity ,payment is made at the beginning of each year

(c) Perpetuity:--It is an infinite series of payments i.e, payment is made indefinitely.

Now showing on the time line ,example of each below:-