Q19RQ - Horngren'S Financial And Managerial Accounting

Question

What is an annuity?

Step-by-Step Solution

Answer

Constant amount of money received over the period is known as annuity.

Step 1: Annuity

The annuity is a series of equal cash payments or receipts in a period. Annuity are of two types ordinary annuity and annuity due. In ordinary annuity money is received at the end of the period where in annuity due money is received at the starting of the period.

Step 2: Example:

This is generally used by insurance company to provide stream of equal cash inflow to insurer on the lump sum amount invested by insurer.