Problem 92 - College Algebra

Question

What is an annuity?

Step-by-Step Solution

Answer

An annuity is a sequence of equal payments made at regularly spaced intervals. Types include ordinary and annuities due.

Step 1: Understanding the Term

An annuity is a sequence of equal payments made at regular intervals. The intervals can be weeks, months, quarters, years, etc. The qualifying factor here is the regularity and equal size of payments.

Step 2: Recognizing Types of Annuities

There are two basic types of annuities: ordinary (or deferred) annuities and annuities due. In an ordinary annuity, the payments are made at the end of each period. In an annuity due, the payments are made at the beginning of each period.

Step 3: Real life Examples of Annuities

Examples of annuities are regular deposits to a savings account, monthly insurance payments, home mortgage payments, retirement payments, and regular dividend receipts.