ORDINARY ANNUITY Meaning and
Definition
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An ordinary annuity refers to a financial arrangement where a series of equal payments or cash flows are made or received at regular intervals over a specific period of time. The term "ordinary" in this context signifies that the payments are made or received at the end of each period as opposed to the beginning. Annuities are commonly used in financial planning, investments, and retirement savings.
In an ordinary annuity, the cash flows are generally equal in amount and occur at consistent intervals, such as monthly, quarterly, or annually. These payments may arise from various sources, including investments, dividends, pensions, or loan repayments. The purpose of an ordinary annuity is to provide a predictable and steady income stream or a means to accumulate wealth over time.
The concept of time value of money is crucial in understanding ordinary annuities. It recognizes that the value of money today is higher than the same amount in the future due to factors such as inflation and the potential to earn returns on investment. When calculating the present or future value of an ordinary annuity, considerations like the interest rate, time period, and payment frequency are taken into account.
Overall, an ordinary annuity is a financial instrument that involves a series of equal payments or receipts made or received at the end of each period, providing a reliable source of income or a method to accumulate savings over time.
Common Misspellings for ORDINARY ANNUITY
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Etymology of ORDINARY ANNUITY
The word "ordinary annuity" is derived from two different sources.
1. Ordinary: The word "ordinary" comes from the Latin word "ordinarius", which means "usual" or "regular". It evolved through Old French and Middle English to its current form in the English language. When used in the context of finance or mathematics, "ordinary" signifies a standard or typical case.
2. Annuity: The word "annuity" has its roots in the Latin word "annus", meaning "year". It originally referred to a sum of money payable annually. Over time, it has evolved to refer to a series of fixed payments that occur at regular intervals, such as yearly, half-yearly, quarterly, or monthly.
When combined, "ordinary annuity" refers to a common type of annuity in which regular equal payments are made at the end of each period.
Similar spelling words for ORDINARY ANNUITY
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